Advisers can take cues from robo-advisers to enhance their services and relationships with clients.
It seems as though people have always been fearful of technology. In the 1980s, an Austrian bodybuilder with debatable acting skills became entrenched as an international icon portraying the end result of human engineering gone wrong. This genre-defining idea of sentient computers rising against their makers gave us a vision of a future where robots not only replaced, but also completely ruled over humanity. Pop culture has long been obsessed with the idea of technology replacing its creators.
In the investment world, a similar terror has gripped many registered investment advisers as the threat of the “robo-adviser” has grown. The downfall of the traditional RIA has been predicted by many pundits as robo-advisers offer seemingly turnkey model portfolios and investment advice to clients, but only through technology and little to no human interaction.
The market share for robo-advisers has, so far, not come close to replacing the role of RIA firms in the lives of investors, but the movement is still in its early stages. Robo-advisers have little more than roughly a 1/1000th of the market share of total household investible assets. That said, new robo-adviser firms have raised an impressive amount of venture capital funding and are best positioned for growth among newer segments of the investor marketplace — notably Generation X and Y investors, many of whom do not yet have enough net worth to invest with most RIA firms. These new investors also are also comfortable with relying on technology instead of human interaction to service their needs.
However, it is exactly those new-to-market investors who fall into the robo-adviser target market who present an incredible new avenue for traditional RIAs to use for growth. Many RIA firms offer the same service to all of their clients, regardless of net worth. If an RIA were to offer different levels of service for different needs in their client base, they could further differentiate their services and open themselves up to a legion of investors who they previously would not have considered servicing.
For example, an RIA could create a technology-only platform for an investor with $50,000, but offer full concierge service including advice on non-investment assets to an investor with $500,000 managed by the firm. As the client with $50,000 increases his or her total net worth, he or she can be brought into higher levels of service. Because this example client has already received engaging technology from the RIA firm through their “robo-adviser” service, they will be more likely to continue with the firm as his or her needs increase.
Even clients with lower investible assets who now choose to work with a robo-adviser can present future growth opportunity for RIAs. Gen X and Y investors can become accustomed to the investment and wealth adviser market, and once they need to seek additional assistance to manage their growing net worth, their experience with a robo-adviser will have already prepped them for the idea of working with a more traditional investment adviser.
Though there is an opportunity here for investment advisers, it is one that they must actively work toward. There are lessons that traditional RIA firms can learn from the robo-adviser that they should begin implementing right now.
The greatest takeaway is that technology will only become more important in the lives of investors. Choosing a portfolio management system that innovates regularly and provides more engaging and interesting solutions that advisers can use to interact with their clients in robust new ways will become more important than ever.
Clients will come to expect that they can send requests for meetings through a quick online form, or chat immediately about model allocation changes with their adviser via an online webcam chat instead of scheduling a sit-down meeting at the office a week or two into the future.
In addition to effectively utilizing a portfolio management system, advisers can also streamline and enhance how they open new accounts online via automated proposals and e-signatures. Advisers can help drive custodians to new levels of automation to stay competitive in offering smoother new account processes, as well.
RIAs that put a correct amount of importance on technology will be able to demonstrate to the next wave of investors that they offer all the same conveniences and efficiencies of a robo-adviser, but also much more.
In the end, there is nothing that will replace the intelligence and compassion behind a real human's touch — not even an Austrian robot.
Eric Clarke is president and founder of Orion Advisor Services, a portfolio accounting service provider.
