“We have to make it about scale,” Klein said.

What is it about robo-advice?

“You really can’t go anywhere and not hear someone talking about it,” Aaron Klein noted at the TechLeaders 2015 conference on Thursday before rhetorically asking: why, and specifically, why now?

Klein, CEO of Riskalyze, a technology firm that matches client risk tolerances with suitable investment strategies based on the precepts of Nobel Prize winner Daniel Kahneman’s work in behavioral economics, believes the answer involves something akin to the five stages of grief. 

“We went from the denial stage where advisors refused to believe it would affect their business to the alarmist stage, which we’re in now, where suddenly they believe they have to become robo-advisors to survive,” he explained. “But we can’t out-robo the robo-advisors. In the race to depersonalize the investor experience, the venture capital-backed money will win.”

The solution is somewhere in between, which requires advisors to change the conversation to one about personalization, and to then be the face of it.

“We have to make it about scale,” Klein said. “We can’t have this business model be about 50 clients. We have to have it so 50 clients pay most of the bills, but scale it so advisors can also serve the mass affluent.”

With the aid of robo-like technology, advisors can develop those smaller accounts into “full-service clients of the future, and democratize access to great advice for all investors.”

So how, exactly, does that work for advisors from a strategy standpoint? By effectively segmenting clients.

“For those under, say, $250,000, they’ll receive reduced services and enjoy corresponding low fees, but it will still be services they need. Be honest with them, and inform them that you will do all you can to get them to $250,000 in assets as quickly as you can. Once they reach that threshold, however, they will need to be reminded that the fee increases, but so will their service.”

Ultimately, Klein believes robo-advice is changing the industry in three primary ways:

  1. Advisors must make a better connection between the fees they charge and the services they provide. If they can’t differentiate themselves from technology that can do it for cheaper, they’re in trouble.
  2. A client’s financial future is the last thing they want to risk, so the lowest fee is far from the first virtue. “There is a neck to wring when something goes wrong, and clients want to know they wring it if necessary,” Klein quips.
  3. Clients are demanding better access through better technology. “One of the speakers said a particular portal looked ‘robo-ish,’ which means it looked modern and inviting. It might not have to look robo-ish, but it better be simple and intuitive.

It’s this last point with which advisors especially struggle, Klein said.

“Advisors say they want simplicity, and then they send us requests on a monthly basis to make it more complicated. We simply say no, because at the end of the day they still want simplicity, and it’s something they love us for.”

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