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Technology > Investment Platforms > Robo-Advisors

Robo-Advisors Will Offer More Opportunities Than Threats to Advisors

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As robo-advisors continue to attract clients’ assets and venture capitalists’ dollars, some advisors may wonder if they’re a threat, or at least a disruptor, to their business. A new study by Hartford Funds says, “not really.”

In fact, John Diehl, senior vice president at Hartford Funds, says that over the next few years, advisors will probably maintain their value in clients eyes; namely that when emotions are running high, advisors are the ones who can help.

Diehl acknowledged that he hadn’t opened his own account on any of the online advice platforms, but he said his “impression of them is that we’re in the early generation of [robo-advisors]. I still don’t think they’ll be attaching to those emotional issues over the next three or four years. Maybe I’ll be proven wrong, but it just doesn’t seem like that’s where their strength is.”

That is clearly advisors’ strength, though, according to consumers surveyed by Hartford Funds. Despite only 28% of advisors saying basic human interaction was the most important thing they bring to their client relationships, 72% of consumers (who unlike advisor respondents were allowed to choose more than one response) said interaction made a traditional advisor more appealing than a robo-advisor.

The survey found clear opportunities for advisors to position themselves as more valuable than online platforms. Although only 9% of advisors said education was the most important and irreplaceable aspect of their client relationships, fully two-thirds of consumers said education from a human advisor was more appealing than from a robo-advisor.

A clear financial strategy and a comprehensive service offering that includes retirement, estate and tax planning were also rated highly by consumers as services they’d prefer to get from a traditional advisor.

Furthermore, that enthusiasm for what advisors offer contrasts with relatively low enthusiasm when it comes to robo-advisors’ offerings. The most commonly cited benefit to robos was the potentially lower cost, cited by 46% of consumers. At the same time, 36% of consumers said there were no benefits at all to using a robo-advisor over a human advisor.

Diehl said that often, the “role of the financial advisor is mainly focused on accumulating wealth. What I see at the client-advisor interaction level is sometimes advisors believe their value to their clients is primarily and maybe exclusively based on their ability to manage assets and generate returns. Yet what we hear from clients is that’s just one component. [Clients say], ‘What I really want is someone who cares and really understands my situation and then can apply the right strategies and vehicles.’”

In fact, 74% of consumers said a financial advisor was a more appropriate choice for their situation, compared with 13% who chose a robo-advisor. Only 12% said neither was a good choice for them.

“It’s not rational thinking that causes people to take action,” Diehl said. “Often what we see is it’s emotion that puts money in motion.” Where consumers do benefit from online tools is in simple transactions where they already know what they want. “If you knew exactly what you wanted to get done, if you knew that you needed to pay a bill or you needed a cash transaction, you understand that an ATM or online bill pay from your local banking institution will probably allow you to do that much more efficiently,” Diehl said. In those cases, though, “the starting point is you already know exactly what you need.”

It’s natural, then, that consumers are more drawn to financial advisors than robos because “it’s not that I already know what I need, I just need to go in there and get it done, it’s that I don’t really have a clear picture of where I’m starting from.”

That doesn’t mean advisors can’t benefit from what robo-advisors offer consumers. Big players like Schwab and Fidelity have already started adapting to robo-advisors’ perceived threat by either partnering with current firms or building their own robo platform, but small firms can adopt similar technologies to expand their client base, maybe by adding the children of current clients, Diehl suggested, who, who are just starting out in their careers and don’t have a very complex financial picture.

“If there was a tool that could teach them and give them recommendations on basic asset allocation to give them a flight path, if you will, to beginning to accumulate wealth, some of these tools may actually be of great benefit,” Diehl said.

He added that as those less complex investors grow, they’ll struggle to find advisors who can help them with more sophisticated plans. “I don’t think it’s a secret that it’s an aging industry,” Diehl said. “There aren’t a whole lot of new people coming in to the industry and yet it seems like there’s a large segment of the general population that soon might need the services of an advisor.”

Offering online tools to clients and providing the education to use them gives advisors an opportunity to secure their business so that they already have a relationship “10, 15 years from now as you get further on in your career, as your family continues to grow and as you realize your parents are getting older,” Diehl said. “At that point, we’re probably going to need to sit down and have a more extensive conversation about a more holistic approach to financial planning.” He added, “That’s what clients are saying to us: that if it just came down to the technical analysis and putting the numbers, there probably are some good online tools, but at the end of the day they really want to talk to someone.”

Advisors “aren’t feeling a threat from this in terms of their traditional business. More what I see them doing is saying, ‘Is there an opportunity here to incorporate this into my business model so that I may actually do a better job serving people that might not look to me for services today?’”

Indeed, the survey found over a quarter of advisors agreed robo-advisors and their technology could allow them to offer different service models based on each client’s needs.

That paints a pretty bright picture for advisors who were worried about the impact of robo-advisors on their practice, Diehl said that ultimately, the best outlook is one where more consumers are getting financial advice.

“Where I hope we see impact.” he said, is among “those clients who are desiring a level of advice that they just can’t get from traditional planning tools that they might locate online, yet they may not be at the complexity or asset level to justify a full blown relationship with a financial advisor. My hope is that overall the number of people getting exposure to some type of advice increases.”


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