April 26, 2017
The rise of McDonald's didn't put all other restaurants out of business, and robo advisors won't put financial advisors out of business either. That said, it is a dynamic new option for investors looking to manage their finances and grow their wealth, and it continues to grow in popularity.
It's time to think about how financial services firms can adapt, pivot, and otherwise account for the influence of robo advisors in the industry.
Sounds cliche, but it can make your firm bulletproof. You can essentially do no wrong by simply delivering great service to your clients. The trick is to first figure out what great service means, and then execute it - consistently. It's not all about hand-holding and touchpoints, although that's part of it. The real trick is in creating great internal systems that continually deliver high levels of value to your client. If you haven't read The E-Myth (Michael Gerber), Work The System (Sam Carpenter), or Secret Service (John DiJulius), stop reading this article and read those books instead. Robo advisors are not a problem.
Just because you're not a robo advisor with a high-tech website doesn't mean you shouldn't look modern. Even if your typical client is someone looking for a human touch, that doesn't mean they want it to be presented through an unattractive, outdated website. Your website can be modern and human at the same time. Since your website is your 'robo salesperson', you want it to be representing you as professionally as possible at all times. Need some convincing to spend the money? Try reading How A Website Redesign Will Save You $50,000.
Smart human beings will always seek expert guidance from other smart human beings. Wisdom is not programmable.
Offer clients the whole package. Provide a wide range of services that a robo advisor simply cannot, including estate and tax planning, insurance and risk management. Many people look to a financial advisor to manage their money across a wide swath of their life and their families' lives - all you have to do is provide that comprehensive service. Smart human beings will always seek expert guidance from other smart human beings. Wisdom is not programmable.
Just because you offer a variety of services doesn't mean you should try to appeal to everyone. The best strategy is to focus on a market segment that you can serve best. By default that often means 'people around where we are located', and that's okay. Your advantage there is knowing the area, the community, and the people - fostering personal relationships. But you'll always be competing with everyone else in the area, including Betterment and Wealthfront, who are now in every neighborhood. The good news is that you likely already serve a niche, but simply haven't taken the scary step of declaring it. It might be medical professionals, high-net-worth families, non-profit institutions, or entrepreneurs. It's your preferred client, and you serve them well, above all others. So perhaps it's time to take that scary leap and let the world know that you are all about them. You and that client - 4EVA. Something to strongly consider, regardless of robo advisors.
Consider lowering account minimums, changing AUM fees, and exploring other pricing options. Yes, it can be unnerving, because it means lower compensation for the same amount of work (and potentially more work). Lower net worth clients can be more sensitive about market fluctuations (can you blame them?) as losses represent a larger portion of, well, everything they have, so they can need more reassurance. But there are lots of creative ways for adding compensation, including a flat annual fee, upselling premium services or adding premium service levels, offering incentives for bringing in family/friends with potentially higher net worth, and so on. If you want to expand your client base, it might be worth exploring new pricing options.
Incorporate robo advisor technology as part of your offerings. Include Wealthfront or Betterment as an option. Offer a free review of a potential client's robo advisor selections, along with a wider view of how it would fit with a comprehensive plan. Show them exactly what a robo advisor is good for, and what it's not. Be that expert guide, a great security blanket for a newbie trying to figure out their finances all on their own.
You can always stand your ground and make your case (on your website, social media, blog posts, whitepapers, videos, etc) for why people should choose a real human being over a robo advisor. They are certainly not equal, and often serve very different types of people. Make that clear. Point out the drawbacks, risks, and limitations of robo advisor technology, and herald your solution for people who want an experienced human being to guide their finances, don't want to do it themselves, or will never trust a robo advisor with their money.