Balance Is Key to Advisor Tech, Client Service: Kitces

The key to building a technology enabled firm that will actually help advisors serve clients efficiently is balance. Michael Kitces, partner and director of wealth management at Pinnacle Advisory, spoke on a webinar on Tuesday about how to integrate technology without weakening advisors’ value proposition.

For example, if firms use technology to streamline the client onboarding process and portfolio construction, they need to have appropriate expectations for what the technology can do.

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“Risk tolerance is about a heck of a lot more now than just ‘does your investment not grossly violate your time horizon and your willingness to take risk?’” Kitces said.

Advisors need to ask more nuanced questions than those that are on robo risk questionnaires, Kitces said, to see if clients’ portfolios will actually get them to their goals. “Rote, repetitive processes” can be easily handled by technology, but clients still need a human conversation to identify their actual risk tolerance, he said.

When clients fill out a risk questionnaire for an automated platform, “How do you even know if a person who takes your questionnaire answered it right?” Kitces said. “How do you even know if the client understood the question?”

That’s where human conversations are still relevant, he said.

Ultimately, it’s not an either-or conversation. Advisory firms need to find the right balance between engaging personally with their clients and using technology to best serve them.

For example, advisors can connect their clients’ investment accounts directly to risk tolerance software to analyze it holistically, he said. That “gets us to the high-touch conversation faster than we did before,” Kitces pointed out. Advisors can produce proposals in real time during client meetings rather than having to gather information, develop a plan and go back to the client later.

The high-value part of an advisor’s service isn’t entering clients’ financial data into a spreadsheet to analyze it, Kitces said, but in having conversations with the client about the analysis.

As client portals and platforms let clients access their information any time, Kitces said “most advisors have been very reluctant to give these kinds of tools to clients,” worrying that clients would obsess over performance and allocations without seeing the bigger picture.

However, “what we find is that once we begin to roll tools like this out to the client base, the intensiveness of which they look at their investments statement and investment performance actually decreases,” he said.

When advisors restrict clients’ access to portfolio information to quarterly statements and meetings, it makes them more anxious, he noted. “Heaven forbid if you miss a question that you should have asked about that quarterly statement, the next one’s not coming for three months, which means it will have been six months since you asked a productive question.”

When clients can see their information at any time, they realize that nothing much changes day to day and start to log in less, Kitces said.