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Making sense of robo tools for financial advisors

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When the first robo advisors appeared a few years ago, they seemed intent on cutting traditional financial advisors out of the equation.

Their goal was to bring basic financial planning and investment management services directly to consumers through the Internet at a low cost.

Members of the advisor community typically had one of two reactions to these intruders. Either they dismissed them or they feared them.

Those who dismissed them focused on their long-standing, traditional offering and the fact that they appeared to be targeting smaller accounts and younger generations with little to invest. On the other hand, those who feared them were advisors who had relied too long on their own plain-vanilla offering and felt threatened by the robos’ low cost.

Both groups missed the most significant aspect of the robo movement. The robos offered proof to everyone that the client experience and advisory firm efficiency could be vastly improved through technology.

Now that advisors are beginning to see how they and their clients can benefit from robo technology, they are looking for ways to implement it, but the choices can be overwhelming. A multitude of options have cropped up offering what seems like an endless number of ways for advisors to access this new technology, and each one is slightly different.

Sorting through the choices doesn’t have to be a painful process for those who have a good framework for analyzing the alternatives.

The first step is to understand the various capabilities that robo technology can provide. The next step is to identify the capabilities that will provide clients a good experience and the firm with efficiencies.

Before an advisor decides whether robo technology is right, and if so, the best way to implement it at the firm, let’s look at what is covered by the term robo technology.

Client engagement tools. These tools allow clients and prospects to go to the firm’s website and interact. They include questionnaires, account aggregation tools, portfolio analysis tools, portfolio recommendation tools and financial planning tools.

Onboarding tools. These tools are used to bring a prospect on board as a client. They allow an advisor to automate much of the process and allow a prospect to open an account online without paper forms, “wet” signatures or paper checks. Using these tools allows an advisor or client to open and fund an account in minutes via the Internet.

Client portal. A client portal allows clients to go to the firm’s website and view information that might be of interest. This information could include account balances, holdings, transactions, performance and various portfolio analytics.

Back-office tools. This category covers a wide range of tools that include portfolio model management, accounting, trading, rebalancing and billing.

At this point, many advisors might be thinking that they have most of this functionality already at their firms.

That brings up an important point, which is that robo technology is not so much about what one does but how it is done.

Robo technology integrates many of the common tasks and processes that advisors already use at their firms, making them easier, quicker and more seamless. In the process, robo technology helps advisors work more efficiently and enhances clients’ experience.

Another important point that is being missed by most firms is that robo technology can be leveraged for serving both next-generation and high-net-worth clients.

Complete packaged solutions. These offerings are as close to a full turn-key solution as one can get. They provide a complete set of tools for engaging and onboarding clients, managing portfolios and handling back-office needs. This version of robo can be white labeled so that the firm is front and center and the robo provider is essentially invisible to clients.

This is a great alternative for those who like everything included in the packaged solution. However, the ability to customize can be limited.

The robo provider’s willingness to make changes in the basic program may be influenced by the size of a firm. So, for example, a firm may have to use a set of standard exchange-traded-fund portfolios offered by the robo provider rather than its own portfolios.

Examples of firms that provide a complete packaged solution include Betterment Institutional and Upside, which both offer pre-constructed ETF portfolios, and Trizic which allows firms to use their own portfolios.

Front-end or back-office only solutions. Some providers only offer part of the robo functionality discussed above. These options work best for those who aren’t looking for a complete package but only want certain functionality that will work together with tech components already in place.

An example of this type of firm is Jemstep. It provides front-end robo technology, including client engagement and onboarding tools and a client portal but doesn’t provide back-office tools. Jemstep works well for firms that already have portfolio management tools in place and allows advisors complete freedom to use their own investment management solutions.

Other firms that provide slick front-end robo-technology are Circle Back, Oranj and Wealth Access. Each provides account aggregation and analysis tools for advisors and an online client portal.

Wealthminder provides online financial planning tools that can be used alone by a prospective client or in consultation with an advisor.

An example of a firm that provides online back office tools is Orion. It provides a client portal, portfolio accounting, trading, performance reporting and billing services but not client engagement or onboarding tools.

Orion’s cloud-based technology has allowed it to integrate with many of the most popular tech applications used by advisors to create a suite of efficiency tools, allowing advisors to spend more of their time nurturing client relationships, rather than dealing with operational issues.

Those who like Jemstep’s front-end capabilities and Orion’s back-office tools you can have both. These two firms have integrated their offerings so that they work together seamlessly.

Orion’s back-office capabilities are also integrated with the robo, Autopilot, which begins the front-end client experience with a gamified risk assessment powered by Riskalyze.

Fully customized, build-one’s-own solutions. Those who have looked at out-of-the-box robo offerings and still aren’t satisfied can roll up their sleeves and custom design their own. This can be accomplished by creating a suite of integrated technology offerings that either the firm already enjoys using or are on its wish list. The success of this model will be based on choosing a combination of cloud-based front- and back-end technologies that can “play together” well.

For example, an advisor can choose to form an integrated suite of one of the available best-in-class client portals, an e-signature company, its custodian and a robust portfolio management system. Depending on how elaborate the design is, in some cases a firm may need to hire a programmer to help pull it all together.

Advisor Software is an example of a tech hub that provides the ability to custom design a robo offering. It has a wide variety of application programming interfaces from which to choose that can be used as building blocks for the solution.

Think of each API as a connection for each piece of the firm’s personal robo puzzle.

For example, Advisor Software offers a risk tolerance questionnaire API, a portfolio analytics API, a performance analysis API, a rebalancer API and so forth. The firm select from the Advisor Software API menu and creates the desired robo capabilities.

Tradier is a firm that is primarily focused on providing brokerage APIs to firms that want to develop online trading capabilities. But it also offers advisors the ability to build automated account opening, account funding and certain client portal capabilities into their websites.

Building a program obviously requires more thought and planning than buying an off-the-shelf solution, but it allows a firm to truly design its own robo from the ground up.

It is important to understand the nuances that each option offers. Each offers a different set of capabilities, look and feel, time-to-market and cost structure.

Identify the features and functionalities to create the best solution for the firm and clients. Then match the firm’s needs with the model and offering that is the best overall fit.

Deborah Fox is chief executive and founder of Fox Financial Planning Network.

This story is part of a 30-day series on how to prosper as an advisor. It was originally published on Oct. 13, 2015.

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