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Where bolt-on robo advisors fail banks and RIAs

For banks and other financial services firms, the bolt-on robo advisor model fails to deliver a seamless experience in servicing the client. Instead of making advisors more productive, it disrupts or is seen as a threat to displace them. And instead of integrating into operational and compliance systems, it can add duplication, increase complexity and elevate enterprise risk.

Enterprise digital advice platforms are disrupting the early disruptors, combining the best of a standalone robo — client experience, efficiency and cost effectiveness — with the personal touch of the advisory relationship and deep operational integration.

We see banks and other financial firms starting to embrace digital advice platforms that make wealth management easily accessible within their existing service channels. A comprehensive enterprise solution is designed to help deliver a better client experience, grow assets, lower costs to serve and reduce complexity. The broader strategic goal is about more than just technology — it’s a path to serving the client’s wealth management needs throughout their lifetime.

To that end, the shift from an asset allocation approach to a goal-based approach to investing will continue to build in popularity. Clients delay gratification and invest because they care about achieving their financial goals. Goal-based investing helps firms build stronger relationships with clients and potentially creates stickier assets. Many banks and other financial firms are evolving from a traditional transactional model or asset allocation model to one that’s based on the value of advice and guidance.

Robo advisor IAG
An attendee types on a keyboard during the MarketplaceLIVE Hackathon, sponsored by Digital Realty Trust Inc., in New York, U.S., on Thursday, Sept. 22, 2016. Digital Realty Trust's clients include domestic and international companies ranging from financial services, cloud and information technology services, to manufacturing, energy, gaming, life sciences and consumer products. Photographer: John Taggart/Bloomberg

Forward-looking firms are implementing digital advice offerings that can take them beyond allocating to a model portfolio. The strategic objective is adding value with financial life management. This moves the conversation from selling products to helping clients achieve their full financial potential. For many advisors, goal-based engagement offers the opportunity to add value in novel ways and deepen the trust-based relationship with clients.

Another enhancement to the client experience is combining a digital advice platform with an omnichannel delivery model. This offers clients access to wealth management services in a branch, on-line (including mobile), with their advisor or by phone. In many ways, it offers the best of both worlds — digital with the right level of human support and advice.

The traditional advisory relationship offers a highly personal client experience, but for a limited wealthy few, whereas the traditional robo offers accessibility but only a digital relationship. Integrating the best from both models gives clients access when they want it and support where they need it, while balancing the economics of the firm. An omnichannel model can also deliver a cohesive tiered or segmented financial solution for clients. It integrates the digital advice platform with the firm’s people, process, and technology. And it allows for clients to graduate between service tiers over time, as their needs evolve and their assets grow.

Personal finance is, after all, a very personal activity. Knowing that help is there when you need it is comforting and critical to sustaining and improving client satisfaction rates. An omnichannel model builds “emotional scaffolding,” so that the client knows that support is available. Adding that human layer to the investment process means a greater chance of clients signing up and staying on track with their plan. Embedding that seamlessly within the wealth management offering can create consistency by connecting all of the touch points — from chat to branch staff to advisors to outreach activities driven by the customer relationship management system.

But consistency does not mean uniformity, because not all firms have the same value proposition and capabilities. Some may desire a more fully integrated digital advice solution across channels from Day One. Others might benefit from a phased approach, starting with an advisor-led or call-center supported program. Flexibility is key.

Firms inevitably need to increase the number of clients and assets that can be cost effectively managed, and service clients with smaller and traditionally less profitable accounts. What makes this possible is lower acquisition, onboarding, and ongoing servicing costs — all tied to better automation, self-service, and client analytics. Firms are also realizing that the investment solutions and portfolio operational options can have a significant impact on the profitability of their small account solutions, particularly when integrated into an efficient digital advice solution.

But not all enterprise solutions were created equal, and this is where we see the trend toward scalability becoming more defined in 2019. An end-to-end advice solution that integrates systems — from CRM to custodian to portfolio management — can accelerate cost savings, lower error rates, increase operational efficiency, and reduce complexities throughout the firm. By actively engaging functions such as compliance and data security, implementation and adoption can be accelerated.

Platform functionality is key; the way the platform service provider engages with the advisory firm and deploys the service impacts speed and ability to capture efficiencies throughout the organization. The enterprise digital advice platform is really solving a different problem, with a more advanced solution, compared with the bolt-on robos.

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