Lately it seems like digital advice is synonymous with robo-advisors, but Jill Jacques, vice president at North Highland, says advisors who use automated advice tools need to make them one part of their tool kit.
“I see automated advice as one part of a bigger digital shift in our industry,” she told ThinkAdvisor. “It’s not a magic bullet for all clients, and it’s not the only digital solution that advisors should be thinking about.”
Advisors and firms that are thinking about incorporating robo-advice in their practice, or who have already done so, should also think about what other digital tools they can use to gain more efficiencies and improve engagement with clients. “Digital solutions in general can replace manual processes such as portfolio management, updating client information or transferring assets, freeing up the time to spend in more value-added areas that clients are willing to pay for, [those] being relationship management and coaching,” Jacques said.
For example, advisors should think about how they can “drive a more comfortable conversation” with clients, Jacques suggested. That might include “leveraging an interactive tablet app in a client meeting to work through scenarios and options versus looking at a screen or paper with a static point in time.”
The rapid rise of digital advice might put some advisors on the defensive as they struggle to find ways to compete against it or use it to their advantage. A survey by Jefferson National of RIAs and broker-dealers found that only 19% of advisors are using a robo-tool or digital offering in their firm, and 10% said they had never heard of a robo-advisor.
“I remember last year around this time nobody was talking about robo-advisors at all. We were talking with our clients, our wealth management firm and our retirement firm clients, about robo-advice and they thought, ‘What is that? Is that like robo-signing?’” Jacques remembered.
She said a big turnaround happened in spring this year when at the SIFMA Private Client conference in April, “robo-advice was talked about in every single discussion, every single breakout and there were still some firms and people thinking, ‘This isn’t going to last. It’s not a competitor for us, advisors don’t need to worry about it.’
“Then within a month or two, everybody is realizing that automated advice is here to stay. It’s part of a digital disruption that’s happening with automated advice and beyond,” she said.
Wealth management firms have typically been quicker to adapt to automated advice and recognize that digital tools need to be advanced, not avoided, but Jacques said that idea “has not trickled down to the advisor group.” While digital advice in the form of a robo-advisor is a new reality, Jacques noted automated advice is not new. “We’ve had automated advice in the advisor space with managed accounts, with target-date funds. There have been automated advice solutions that advisors have been using for many years. This is just an evolution to portfolio management. It can be very, very good,” she said.
A lot of firms are still in a “buy or build” phase, where they’re trying to determine if it’s better to partner with another provider or acquire a robo-advisor, or to build their own solution, Jacques said.
“It’s a change management issue” for veteran advisors, she said. “Advisors who have been doing very well for 25, 30-plus years the way they’ve always done their portfolio management, and getting more veteran advisors to change is difficult. There’s the actual tool and technology discussion going on, and how best to integrate it so it doesn’t feel bolted on with current financial planning tools, but also getting advisors to change their ways of portfolio management will take more time.”
She suggested advisors look for areas digital tools can add efficiencies in their practice. “Investments are becoming commoditized. It’s hard to prove a difference between mutual funds or bonds […] so clients are gravitating toward more value-add services and more of a relationship with an advisor than beating the market and they’re willing to pay for that. Clients are actually pushing for advisors to do more automated advice solutions so the advisors have time freed up so they can talk with the client and help them through different scenarios and help them think through different options.”
— Check out Robo-Advisors Will Need Humans — Yes, Humans — to Grow Business: Cerulli on ThinkAdvisor.