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5 Things Advisors Can Learn From Robo-Advisors

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The rise of online investment platforms, commonly referred to as robo-advisors, has many traditional financial advisors on high alert. If do-it-yourself firms like Wealthfront and Betterment stick around, will it truly create a sea change in our industry? I can’t answer that question. And while I am partial to the customized approach that human advisors can provide, I do believe that there are certain things that advisors can learn from robo-advisors.

Without further ado, here’s what robos do well—and what advisors can learn to help them better differentiate themselves from their lower-cost competitors.

1) Automate Your Processes

You don’t earn the robo moniker without effectively automating tedious tasks that have long been a pain point for advisors and clients. With robos, account opening, money movement to and from bank accounts, tax loss harvesting, and portfolio rebalancing are all reduced to a few clicks. This streamlining is their core competency and the foundation of all they do.

How can you automate your processes? Using model portfolios and developing rebalancing schedules can is a good start. Here at Commonwealth, we’ve tried to simplify these processes for our advisors. For example, our Practice 360°® Models application allows advisors to build their own model portfolios or to use ours, and rebalancing can be done with a simple click.

2) Stay in Regular Contact With Your Clients

Although robo platforms can’t offer a warm handshake and a cup of coffee while discussing the markets, they are still very effective communicators. They are able to deliver missives on a daily basis through multiple channels, including e-mail, blog posts, tweets, and client-messaging systems that allow them to “customize” messages to clients when clients log into their accounts. As an example of this, the figure below shows how Betterment and Wealthfront delivered messages to their clients during the market volatility of August 2015.


 (Source: Twitter)

How can you communicate more effectively with clients? Although you may not be able to keep up with robos in terms of how often you send messages to clients, the lesson here is that you can and should be active on social media. This includes sharing quality content that speaks to your target audience, figuring out which platforms that audience is using, and taking the time to build social media into your overall marketing plan.

3) Share Content That’s Relevant

The robos just mentioned—Betterment and Wealthfront—have another valuable tool at their disposal: an impressive array of academics. Betterment boasts an Investment Committee with the requisite CFA® and CFP® certifications but also leverages multiple PhDs from the faculty of Columbia University. Wealthfront counters with economist Burton Malkiel and Meir Statman, widely recognized as one of the foremost experts on behavioral finance. Further, the content available from both firms is not only voluminous—covering topics across the personal finance spectrum—but also very high quality and likely on par with the content libraries of many established distribution giants.

How can you find relevant content? Of course, you may not have access to faculty from an Ivy League institution. But you should still provide your clients with relevant content. Your broker/dealer likely has such content that you can customize for your clients. At Commonwealth, advisors have a wealth of resources available via our Four-Corner Marketing engine, including brochures, market commentary, and social media updates. You might also search the websites of well-known outlets to stay abreast of what’s happening in the industry and share relevant content with your clients and other followers. (For example, have you checked out The Independent Market Observer?)

4) Leverage Your Independence

Who is the target audience for this great content the robos so effectively deliver? Robos have created something of an anti-financial services community by catering primarily to a niche of tech-oriented professionals. These individuals often have a strong predisposition to believe that a technology-driven solution will offer a superior outcome by minimizing the influence of traditional financial services providers.

How do you appeal to the counterculture community? If you are an advisor who is part of the independent channel—or you are thinking of moving there—you have a real advantage over other retail financial advisors that should be promoted. Specifically, since you’re not required to hit sales quotas or sell proprietary products, you can focus on what matters most: your clients’ individual financial goals. 

Yet another lesson here is that although technology is great (and an effective selling point), it’s only part of the equation. Yes, your clients and prospects want technological innovation, but they also want a great advisor. They need the wisdom and experience that go beyond an algorithm-based methodology. They want the personal connection, someone who recognizes that financial lives are not data points but real-life situations requiring nuanced interpretation.

5) Provide True Value

The robo strategy also suggests that despite their high fees, human advisors have no answer for market volatility. This logic, deeply rooted in index-based portfolio construction, goes something like this: The best possible investor outcomes will essentially mirror the selected asset class returns, so clients should seek to minimize advisor fees wherever possible. In fact, without any face-to-face human counsel and with few ancillary services to offer, many robo providers are marketing low cost as the most important driver of investment success.

An example of this strategy came during the market turmoil in August 2015. Betterment suggested that its clients add money, reduce equity exposure, and revisit their goals. Nothing is inherently wrong with these ideas, except for the fact that the robo has no real idea how those suggestions apply to a specific client situation. Wouldn’t it be great if clients had a trusted advisor with intimate knowledge of their specific financial situation with whom they could have this conversation in person, eye to eye?

How do you compete if you can’t compete on price? You can provide comprehensive financial planning, not just investment management. As a trusted advisor, you offer value in ways a technology solution cannot. You can: 

  • Use experience and intuition when risk profiling
  • Have face-to-face meetings and account-specific reviews
  • Effectively manage your clients’ emotions as you guide them through market cycles
  • Provide holistic financial planning to meet an array of needs

Simply put, in terms of service and personalization, robos just don’t compete.

A Personal Touch

The goal of robos is to have consumers believe that investing and even saving for retirement are so simple they can be completely automated. In fact, robo-advisors can be a fine solution. But let’s be clear about what type of solution this is: a DIY solution. Their content is decidedly devoid of personalized advice.

There is no question in my mind that robo advice will find a niche and capably support a specific segment of investors. I think many would agree, however, that the cost of failure when saving for retirement is simply too high to entrust entirely to a low-cost provider that is primarily focused on disrupting our business than on client relationships.

For more on how you can demonstrate your true value, download our Money Personality Quiz, which you can use to gain insights into your clients’ behavior that no robo-advisor can replicate.

This post originally appeared on Commonwealth Independent Advisor, a blog authored by subject-matter experts at Commonwealth Financial Network®, the nation’s largest privately held independent broker/dealer–RIA.


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