Your secret weapon against robo-technology

Your secret weapon against robo-technology

George Tamer | May 14, 2015

Robo technology has been able to gain considerable market share by targeting a sector of the marketplace that has been largely ignored by the investment industry.

When a person considers investing their money with an investment advisor, there are a myriad of questions that may go through their mind. “Does the advisor understand my goals?” “Will I be able to successfully meet those goals?” “Will my spouse agree with the investment selection?” “What are the risks involved?”

In today’s investment advisement landscape, two primary contenders are battling it out to win that client’s business. The traditional personal financial advisor and the upstart robo technology firms, a turn-key investment platform employing algorithms based on modern portfolio theory to construct and manage portfolios.

Robo technology has been able to gain considerable market share by targeting a sector of the marketplace that has been largely ignored by the investment industry at large—households with under $250,000 in assets, which represent 73.9% of US households1. They’ve also focused on younger generations who live so much of their lives online—individuals ages 18 to 54, which represent roughly 51% of US households2.

These technology firms have hundreds of programmers, developers and engineers from prestigious colleges and universities with computer science degrees, research degrees and MBAs, all creating algorithm-based services for households that prefer a digital advice experience. They also have hundreds of millions of dollars in venture capital. With these types of resources, today’s financial advisor may seem to be outmanned and out funded. But, counters Bill Winterberg, Founder of FPPad, the one thing they can hang their hat on, is that they are not out trusted.

At National LINC, Winterberg presented the idea that while robo technology may provide a number of options and recommendations for an investor, they typically don’t offer the human element that is at the heart of these questions.

This reality presents a great opportunity for financial advisors to accentuate one major differentiator—human capital. The relationships financial advisors form with their clients create a level of confidence within the investor, knowing that their life goals, values, concerns and dreams have been accounted for when making an investment. A financial advisor’s ability to connect with individual investors in a real and meaningful way, offering both specific and broad advice, is what will win in the age of digital advice.

While robo technology offers a less expensive alternative to portfolio management, algorithms and profiles are not equipped to deal with the nuances of evolving life priorities based on family and personal changes, and the complexities they bring to a financial picture. Smart advisors will compete head-to-head by positioning their value to clients as their ability to help them navigate the financial landscape of ever-changing life circumstances3.

But this doesn’t mean financial advisors don’t need to embrace technology. On the contrary, the use of digital tools, such as portfolio rebalancing, document management and account aggregation, and digital communication tools should be a priority for advisors. This includes having a targeted website that ranks well in search engines and promotes a relationship-first investment approach, with information and photos of yourself and your team members. It shouldn’t be a relationship OR technology approach. It should be a relationship AND technology approach.

The key question for today’s advisor is, “How can I supplement my human capital with digital and online tools that resonate with a younger and more technology-savvy generation?” An advisor’s ability to answer this question will help level the investment advisement playing field and rewrite the rules of engagement.

1. United States Census Bureau Data from 2011
2. United States Census Bureau Data from 2012
3. ‘Robo Advisors’? How to Fight Back, Bob Veres, Financial Planning columnist