Advisors often express their desire to be mentioned in the same breath as other respected professionals like lawyers, CPAs and physicians. Following that wishful analogy to its logical conclusion, Joe Halpern characterizes advisors’ value to clients in light of the digital advice trend by wondering if, when you were ill, “have you ever gone to a robo-doctor?”

While acknowledging that advisors (and doctors) would do well to automate many rote procedures and lower-value processes in their practices, the founder and CEO of Exceed Investments said in a Thursday interview that advisors have “expertise in investing, expertise in financial planning” that justifies the fees they charge. Advisors should make use of institutional robo-advice platforms for clients with lower levels of assets, especially younger people whose income and assets are likely to grow in the coming years. Think of such a supportive robo-advisor, he says, as a “technology-enabled TAMP.”

 “An advisor can ask ‘How did you feel in 2008?’” when most clients saw steep declines in the value of their portfolios. The answer to that question is likely to give an advisor more insight into how much of a drawdown an individual is comfortable with, since “ultimately, humans are emotional.”

 

After all, “ultimately, doctors are making decisions for you” as a patient just as advisors make decisions for clients. Sticking with the analogy of doctors and advisors, Halpern asked whether it would make sense for a patient to tell a doctor what his disease was — to self-diagnose and then to pick his own medication or course of treatment — rather than following a process in which the doctor asks questions about the patient’s condition, conducts tests, and then prescribes an appropriate course of treatment.

On a visit to ThinkAdvisor’s New York office, Halpern suggested that the most valuable benefit of working with an advisor is the advisor’s knowledge of human behavior, similar to the physician’s knowledge of human anatomy and what is best — or harmful — to that human being. One example of an advisor’s value is when it comes to accurately assessing a client’s risk tolerance, he said. While risk tolerance questionnaires can be helpful, many individual investors would find it hard to self-assess their appetite for risk, especially outside of a specific context of time or place.

The lessons of behavioral finance help to inform Exceed’s flagship product, the Exceed Defined Shield Index Fund (SHIIX), a ’40 Act large-cap mutual fund that uses options to provide what Halpern calls “controlled exposure” to the S&P 500, providing more protection on the downside (limiting losses to the first 12.5% of the S&P’s decline) while allowing for upside growth, but with a cap of 15% of the S&P’s gain. Investors, in particular those in or near retirement, are much more comfortable — and thus more likely to stay invested — when they know that their losses will be limited while they will still be able to participate in some growth. The first lesson of behavioral finance is that investors fear loss more than they desire gain.

Such an investment approach, which Exceed calls “defined outcomes,” can be particularly attractive during periods of high-volatility markets. Referring to advisors, Halpern said that during the sharp market downturn in January 2016, “we had lots of people coming in” to consider investing in the fund, which is based on the jointly developed Nasdaq Exceed Defined Protection Index. “They appreciated the formula” that the fund follows, he said, along with its liquidity and transparency.

Those characteristics will also help Exceed’s business when it comes to advisors complying with the Department of Labor’s new fiduciary rule, Halpern said. “DOL is very good for us,” he said, since “our product is similar to many insurance products,” with its emphasis on risk protection and the transparency of its fees. Exceed’s fund is “very close to fixed indexed annuities.”

That closeness, and transparency, also led to a partnership struck in March 2016 with Jefferson National to offer the JNF Exceed Defined Shield Index Portfolio, which puts the Exceed strategy within a tax-deferred wrapper and, like other Jefferson National annuity products, is designed to appeal specifically to RIAs and fee-based advisors.

— Check out What Doctors and Families Have That Advisors Don’t on ThinkAdvisor.