As the investment industry continues to innovate, a digital divide is opening between advisors who embrace technology to its fullest possible extent — by adopting digital tools, for example, that provide a more interactive and streamlined client experience — and those who do not.
This divide may prevent the latter group of advisors from fully and effectively engaging with their clients and prospects. Many investors prefer a digital experience that can help them access, on their own terms, the information they need. They might research which advisors use interactive tools and social media before they even arrange a meeting, or prefer a smart client portal that aggregates data – which can provide a holistic view of the individual’s personal finances and investments.
Technology also helps advisors reduce time spent on operations, allowing them to devote more time to client-facing activities. This can lead, in turn, to greater client engagement. A 2016 Aite Group research report found that advisors who effectively use advanced technology can dedicate around 20 percent of time previously spent on operations to client investment management tasks.
The Kasparov Principle
How, then, can advisors bridge the digital divide? The world of chess may be able to offer an explanation.
In 1996 and 1997, Russian world chess champion and grandmaster Garry Kasparov played two matches against IBM’s Deep Blue supercomputer. After initially winning in 1996, Kasparov was defeated by Deep Blue the following year — the first time that a computer beat a standing world champion.
Kasparov subsequently developed “advanced chess,” in which human chess players can team up with computers to support their games. Drawing upon this experience, the Kasparov Principle tells us that experts and machines can achieve more by working together than they can alone.
The same can be said of advisors. As in chess, it has become clear that the greatest benefits can come by marrying humans with technology — by enhancing traditional platforms, for example, with digital tools like data aggregation, self-serve investing, document vaults and goals-based financial planning.
Technology can indeed introduce today’s advisors to a range of diverse approaches. While human advisors can – and do — still provide services under the traditional model, others might implement a solution like a robo-advisor that offer algorithm-based advice in lieu of a human advisor’s services.
But these models are not mutually exclusive: Hybrid models can streamline with digital features while still allowing clients to engage with a human advisor whenever they’d like.
By offering alternatives that suit the needs of different client segments, advisors will be better placed to expand their pools of potential customers. And if their businesses are to be sustainable in the long run, advisors should appeal to a wide range of customer segments.
Not all advisors, however, can achieve this. With baby boomers poised to transfer $30 trillion to younger generations over the coming decades according to the WealthX and NFP Family Wealth Transfer Report, it is telling that children often elect not to stay with their parents’ advisor after an inheritance.
Advisors, then, must be able to serve diverse groups of clients — while understanding that different segments have different needs, aspirations and expectations when it comes to technology. Whether a millennial saving up for their first house or a baby boomer approaching retirement, the client must have access to tools and strategies that align with their goals. And advisors need to stay connected to their clients to help build even stronger relationships over time.
Where to start
To cross the digital divide, advisors must first understand the tech landscape and how they can use new solutions — from Envestnet’s Financial Wellness Solutions and predictive analytics to single sign-on (SSO) and document vaults — to enhance their practices by keeping up with the latest concepts and terminology. And it’s crucial that advisors cross that divide if they hope to remain competitive in today’s market.
Clearly, they cannot achieve this overnight. Instead, they’ll need to build out their goals and draw up an execution plan before implementing a new strategy. The move to digital also has cost implications — albeit ones that can help advisors expand their client bases and operate more efficiently.
In order to have a clearer understanding of the relevant costs, advisors should break down the price tags of each offering for each customer segment, by modelling, for example, the level of human interaction required by different service components.
In conclusion, it is essential for advisors to remain relevant to clients who have grown up with technology. At the same time, they must continue to serve all client segments effectively. There is much to gain by crossing the digital divide — and plenty to lose by remaining on the other side.
The information, analysis, and opinions expressed herein are for informational purposes only. Nothing contained in this article is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.