I recently encountered an adviser that is in the process of implementing their third robo advice solution. Think of all the time, money and aggravation involved in researching, purchasing and implementing three different robo offerings and the frustration that occurs when the hype does not live up to the reality.
While technology can revolutionize an adviser’s business, it’s critical that advisers consider what’s next before they sign on the dotted line.
You should know your desired outcome before you choose a path and a partner. What value would a robo add to your business? Is it a defensive move, or a way to expand your reach and grow? What would the offering look like? Who would I target with this service? What fee will I charge? It is critical to identify who fits your profile for an automated solution versus the stereotypes being placed on entire segments of the population.
Ideally, advisers should be able to leverage technology in a robo-enabled world that splits the service into three separate components: onboarding and funding, goal setting and advice, and ongoing review and portfolio management.
These new digital platforms have really brought onboarding to a more advanced place, and both advisers and clients seem happy with the advancements. But the adoption and execution on the other two parts still needs to evolve. In the end, picking and choosing which pieces of the technology to employ and deploy is ideal.
So what is next? Here are some tips to consider before you decide to go digital.
STRATEGIZE BEFORE SHOPPING
You must have a clear idea of what you want to accomplish for your firm and you should clearly define success. Then and only then should you see how a tech-fueled platform could help you get there. These are essential pieces of analysis to perform before you get distracted by amazing features or the need to keep up with the competition: What problem will a robo solve for you? Will it improve your ability to serve clients’ children profitably? Will it help you engage new clients? Train younger advisers in coaching and service? Generate profits or create losses? Defining what you want to accomplish and analyzing the data will enable you to define success, and move on to the next challenge from there.
IT'S PART OF DUE DILIGENCE
The wide misconception is that robo advice is a self-service offering requiring little effort on the part of the adviser. It can be very close to that, but that simplicity could erode any unique advantage your firm can offer. Advisers must consider the level of support they plan to provide to their clients and segments. This variable can be very important to the way you price your offering. Advisers can essentially choose to employ all or part of a digital offering, dialing up their full suite of services including manual client touch points based on client need. The more assistance and manual touch points a client needs, the greater the value and hence the higher the cost to the firm and to the client.
(Also be sure to heed the latest Labor Department rule FAQ and it's impact on digital platforms — if an adviser is only recommending proprietary products "they need to comply with the more stringent provisions of the full BIC exemption to safeguard the investor from biased advice.")
DO THE ALGORITHMS MATCH YOUR INVESTMENT PHILOSOPHY?
Just as every adviser has an individual approach to asset allocation and portfolio construction, so do robos. Their overall asset allocation models vary widely, as do their asset selections. None of them are perfect, so seek out allocation models and asset choices that are close to your own and can be tweaked if necessary. We are also seeing fully customizable platforms that have the look and feel of a robo but whose underlying portfolio components are completely driven by the adviser.
YOU REALLY NEED A STABLE PARTNER
The robo world is evolving rapidly. Having your robo platform provider get sold or even go out of business could be monumentally disruptive to your business. So do take that possibility into consideration if you’re contemplating working with a robo provider that still stands alone — just as you would with any provider of essential technology. Also, take a hard look at what tech-enabled services you already use in your business. Many of today’s leading adviser service providers are already providing components of robo offerings in combination with other tightly integrated service providers. You may be partially there without even knowing it!
IMPLEMENTING A ROBO IS LABORIOUS
It's digital, so it should be as simple as pushing a button, right? Not at all — rolling out a robo is just as time-consuming and glitchy as implementing any other major piece of technology. It’s not only the technology, but the heavier lifting involved in weaving this service into the fabric of firm’s processes and operations. So grit your teeth and make sure you have the resources to devote to implementation before you start.
The most interesting part of Investopedia's definition of robo adviser is “…advice without the use of human financial planners.” Does that mean we should all just walk away? This is the biggest fallacy in my opinion as I view technology as the great equalizer.
Combining latest technology with the strategy and value of the adopting adviser is where the magic happens. The robo doesn’t do it alone. Ask yourself what the client is hoping to see: a faceless robot or a seamless, bionic combination of person plus technology? I believe in the latter. Remember, it’s the human interaction that cements your value as an adviser.
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