How a ‘Pathfinder Queen’ beat a robo

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As I reflect back on my early days in the business, I think I was destined to work in a fiduciary environment. I started in the San Francisco office of a major Wall Street firm, and like many of us who entered the industry during that period, I had to face the reality of smiling and dialing: getting prospects on the phone so I could pitch them the latest mutual fund, stock, bond fund or whatever else the firm was highlighting that week.

But something about that approach never made sense to me. Who was I — a kid barely out of college, who had never experienced the responsibility of managing a significant amount of assets — to be telling these people in their 50s, 60s, and 70s the best way to invest their money? What did I know about these people, really? What basis did I have for advising them about something so important?

The 'Pathfinder Queen'

In those days, my firm had a financial profiling tool called the Pathfinder. For a fee of about $250, clients who gave me some detailed financial information received back from me a nice, bound book with their personalized financial data, along with investment, savings, and other recommendations. Looking back, it was pretty primitive. We even had to input the data on our clunky Quotron terminals, then wait a week or two until the finished, bound report came back from the home office.

But the most important thing the Pathfinder did for me was to help me really get to understand my clients: their needs, goals, resources, risk tolerance, and everything else. I figured out that this was a way I could really, truly know my clients. And, by gathering all their data and presenting it to them in this format, I was adding real value to my relationship with them. I started doing Pathfinders on every client I could convince to pay the $250 fee. I became known around my office as “the Pathfinder Queen.” The company even ran a contest for Pathfinders, and I won a large-screen TV, which I thought was really cool. (This was when large-screen TVs were about the size and shape of a washing machine, and they weighed about the same.)

The More Things Change …

Without question, we live in a time of dizzying change, not only with regard to the changes themselves, but also—maybe mostly—with regard to the pace of change. Pathfinder, once cutting edge, has been relegated to the dusty archives of rudimentary financial technology. Other advances have come at an exponential rate, and this is nowhere more evident than in the financial markets. Those of us in the advisory business are facing the same bewildering landscape at the same time our clients are looking to us to help them find their way.

Further, the regulatory environment seems to be in a more or less constant state of flux. The latest example of this is the Trump administration’s hold on the implementation of the DoL fiduciary rule. While many broker-dealers and others traditionally compensated by commissions on sales or trades have applauded the move, many of the largest firms are nevertheless going forward with plans to convert to fee-based services, sensing that more and more investors perceive commission-based compensation to be inherently tilted toward a conflict of interest for financial professionals.

Finally, the advent of robo-advisers is being hailed as the democratization of financial advising. Touting the low fees and easy access featured by these algorithms-for-hire, many believe that assets under management by robo-advisers will rise by an astounding 2,500 percent between 2015 and 2020, to about $489 billion.

So, in an environment of constant, accelerating change that is also characterized by investor scrutiny of advisers’ motives — and compensation — how are advisory firms evolving to meet the new challenges? I believe the answer lies in two phrases: “Know your client” and “add value.” Do these sound familiar? They should; they’ve been around at least as long as the beginning of my career, back in the 1980s. Together, they drive us to reconsider the foundation of our fiduciary relationship with our clients — the relationship that, I believe, will ultimately allow us to continue to thrive.

The More They Stay the Same …

As I reflect on my practice today, I realize that in many ways, it is based on the same principles as the old Pathfinder product. At the core of my relationship with my clients is my need to know everything I can about their goals, dreams, fears, past experiences, financial resources, liabilities, risk tolerance, and investment strategy. The principal way I can add value is by having such a good understanding of them that my planning services seem like an outgrowth of their own objectives for their lives.

Our industry has always gone through cycles — in many ways, it is built on them. In the 1990s, for example, many of us went away from financial planning toward a focus on money management. Those were the days, of course, when the tides were mostly rising; people were making money at a brisk rate, and they needed someone to tell them where to place it. But then, the dot.com bubble burst, and much of that easy wealth went away.

Not long after, the financial crisis and Great Recession wiped out even more capital. Eventually, people’s interest in money management faded, replaced by a wish for guidance, for planning, for strategy. In other words, they needed advisers who knew them and who had the tools to help them get on track and stay the course.

Today, I believe that more firms need to ask themselves: “What kinds of tools, research, and resources are we bringing to bear on our work with our clients? How are we adding value to the relationship now, and how can we add more value in the future?”

For some firms, part of the answer may very well lie in giving clients access to Nobel-Prize-winning algorithms — robo-advisers — that can perform certain types of portfolio management and rebalancing tasks in a very cost-effective way. I would certainly never discount the ways that smart use of technology can add value to client relationships.

But in a downturn, or when the next financial cataclysm rocks the markets, our clients can’t sit down over a cup of coffee with an algorithm. They can’t walk into a robo-adviser’s office and receive the emotional reassurance, offered with an understanding of their unique situation, that they need to hold steady through the squall.

What they want and need is a relationship: one based on trust and understanding. That need is as old as humanity itself. And it isn’t going away, any time soon.

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