Attempting to dispel the myths about robo-advice, Tom Kimberly, general manager of Betterment for Advisors, said the nascent robo-advice market is not “human vs. technology. One is not going to win and the other lose.”
Speaking at the Financial Planning Association’s national conference in Baltimore Wednesday, Kimberly noted the proliferation of “critiques of where we are” concerning robo-advice. “We have to remember change takes hold slowly in the industry we’re in.”
The relationship between advisors and those firms providing robo-type technologies is “developing,” Kimberly told attendees, and Betterment needs “to stay really engaged to make sure that our ambitions and goals are aligned with how you think about the market.”
Indeed, John Wotowicz, CEO of InStream Solutions, a financial planning software for advisors, noted in a separate panel discussion with Kimberly focusing on the new age of technology and advice, that it’s only been in the last five years that technologies have been developed for advisors and their clients. “We’re really at the beginning of the evolution of those advisor and client wealth management facing tools–not at the end.”
Both Wotowicz and Kimberly maintained the various tech developments will only free-up more time for advisors to help their clients.
Kimberly noted Betterment Institutional’s just-announced name change, to Betterment for Advisors, reflects the firm’s “mission” to partner with advisors. With the name change, he said that “we wanted to clarify to the marketplace who we’re serving—we’re not working with banks, insurance companies or large institutions.” Betterment now serves more than 350 advisors.
Both Wotowicz and Kimberly said enhancements to technology will also need to be made to adhere to the Department of Labor’s fiduciary rule.
The DOL’s rule calls for “increasing requirements to record the reasons for recommendations that we make,” Kimberly said in separate comments to ThinkAdvisor. At Betterment, “even when we are working with advisors we have a fiduciary role.”
For instance, Kimberly said, in the Betterment app, if “there’s a recommendation to roll over an old 401(k) into a Betterment IRA, we need to be doing the analysis to be sure that the recommendation is the in the best interest of the client and we’re recording that information. We do a lot of that already, but have to make sure all Is are dotted and Ts are crossed.”
He also said Betterment’s legal team is working on guidance for advisors to help them “think about the implications of the rule,” but he could not offer a timeline on its release.
As for myths versus realities about robo-advice, Kimberly offered the following examples:
Robo-advice is a threat to traditional planners and our goal is to replace you.
Reality: Tech and humans will extend and amplify what we can do for advisors and their clients, and only create efficiencies for advisors and clients.
Robo-advice platforms will dilute the human relationship I have with my clients, with technology now doing things I used to do.
Reality: “We think not,” Kimberly said. “You’re meeting the needs and expectations of clients who want an online experience, so you’re delivering more value.” The efficiency of technology “allows you to do more for the client; to deepen the relationship.”
Robo-advice is too simple to meet my clients’ needs.
Reality: “There is a lot of embedded sophistication” in Betterment’s technology, Kimberly said. “We are continually developing capabilities so we can do more for you and your clients. We don’t expect that the Betterment platform will be the only one you need to run your practice, and that’s OK.”
Robo-advice is only for millennials.
Kimberly noted research performed by Accenture dubbed “GenD,” which is a survey defining who are the clients in the wealth management industry that want to consume financial information digitally.
The survey found 44% of the investing population are in GenD, so 56% don’t have a big appetite for digital. However, he pointed out, 25% of the 44% are baby boomers and 26% are millennials—so “it’s literally tied,” he said.
Thirty percent of Betterment’s assets are with clients older than the age of 55, Kimberly said. “They don’t perceive digital as critical, but they see where the market is going and want to take advantage of these changes.”
Robo-advice is a passing fad.
Efficiency is good for everyone, and the changing demands of our client bases is not likely to change.
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