Borrowing from a robo-advisor: Your guide to being robo-efficient

Borrowing from a robo-advisor: Your guide to being robo-efficient

Dani Fava | March 23, 2017

Let’s take a closer look and discover what aspects of the robo-advisor industry can be borrowed to make our traditionally human practices more efficient.

Not surprisingly, when it comes to the financial services industry, humans win again. Even pioneer “robo-advisor” companies like Betterment are stealing a page from a successful playbook and adding a human component. Clients of Betterment with $100,000 or more can now contact a human advisor, proving that financial advice doesn’t work without people.

But, should we lace up our tap shoes and do a victory dance? Probably not. Instead, let’s take a closer look and discover what aspects of the robo-advisor industry can be borrowed to make our traditionally human practices more efficient.

Automation makes life easier

When we look at how robo-advisors are able to scale their operations to accommodate an enormous number of small accounts at a lower cost, we come up with one answer: automation. Furthermore, we can separate the functions that robo-advisors automate into three categories:

1. Determining risk tolerance and onboarding
2. Investment research and model creation
3. Rebalancing

But who says you can’t employ tactics like that, too?

Determining risk tolerance and onboarding
When clients engage with a robo-advisor, they’re usually able to complete their risk assessment and onboarding entirely online—at their leisure and without any paperwork. Human advisors can also collect a risk assessment and review a client’s goals online by leveraging a number of third-party programs, including many free solutions. But, advisors can add to this automated process in a way that robo-advisors cannot because they are able to explain the results and explore client-specific and personal scenarios.

Advisors can also simplify the onboarding process by investing in e-signature programs and secure online file sharing. Many custodians, as well as portfolio management solutions, offer discounted or free programs that meet these needs. TD Ameritrade is integrated with several Open Access vendors which offer this full suite of onboarding technology.

Investment research and model creation
Robo-advisors use a finite number of model portfolios that are assigned to a client largely based on his or her appetite for risk. Further, robo-advisors do not spend any extra time uniquely customizing a client’s portfolio. By using standardized models and fully mobile data collection, they drastically cut down the time it takes to service clients.

So, are there any cost-effective solutions available for RIAs to get help with model construction? At LINC 2017, TD Ameritrade Institutional announced that later this year it will launch the Model Market Center to fill this gap for advisors. This will make a supermarket of third-party models from well-known asset managers directly available to RIAs without the additional cost of an overlay. As advisors onboard clients, they can map to the Market Center model that suits them the most, and then the advisor can make adjustments based on individual needs—another service that surpasses traditional robo-advisors.

Robo-advisors could not operate without automated rebalancing. While rebalancing tools are readily available to human advisors, surprisingly, only 41% of advisors use them!1


If human advisors want to achieve the same efficiency as their robo-advisor counterparts, they should employ a rebalancing technology solution like iRebal®.

Remember to be human

With investment strategies quickly becoming commoditized by the robo-advice movement and technology replacing some traditionally human functions, it’s important to focus on building relationships and articulating your value proposition. While robo-advisors are a quick investment solution, people still crave the human touch. An attendee at LINC said it best: “Did the home treadmill kill the commercial gym? No. We all need to be around people.”

Finally, human advisors provide a personal touch. . The fact is that a computer can’t understand a client’s full financial picture or complex goals, not to mention provide ideas on how to pursue those goals. It cannot help manage a person’s fears by discussing different possible outcomes. And it can’t automate more complex financial events like estate and tax planning.

Give clients the best of both worlds

While the human touch is the proven winning scenario it can’t be the only thing you hang your hat on especially since many clients may have spent time working with a robo-advisor in the past. In those cases, you must have a solid technology stack to give them a comparable experience, plus the advantages a human advisor can bring. And when you can figure out how to harness the efficiency of a robo-advisor while offering your clients more insightful service, you can begin building a firm that provides value to your clients.

1. 2017 T3/Inside Information/Advisor Perspectives Software Survey.