Kids like to watch schoolyard fights. But when the dust settles, the little onlookers walk away with nothing gained, while the fighters often limp away the worse for wear.
Likewise, financial advisers shouldn't waste their time obsessing over the battles breaking out between robo-advice platforms. A brawl between faceless programs competing on price only distracts professionals with beating hearts from their own value proposition: intimate knowledge of the client as a real person with real concerns.
The big new entrant into the robo fray, Schwab Intelligent Portfolios, packs two punches the startups Wealthfront and Betterment can't swing. Schwab has enormous scale since it is the biggest advice custodian in the yard, long renowned for both technological infrastructure and customer support.
chwab also has the advantage of offering a “no-fee” robo that still can lead to hefty revenue for the company, thanks to both
cash deposits at its bank and more than 20 proprietary exchange-traded funds on its asset management side. Only Vanguard's Personal Advisor Services platform is nearly as intimidating.
Make no mistake, some startup could prove much tougher than it looks and come out on top. For instance, maybe Wealthfront will succeed in persuading investors that Schwab Intelligent Portfolios isn't quite as inexpensive as it seems at first glance. If so, that still boils down to scrapping over price. But as any business school worth its salt teaches, competing on price risks sparking a price war, which is a race to the bottom in terms of profitability and long-term strategy.
More alarming, it's generally accepted that companies compete on price when value is not perceived in the actual product. That's logical. Why sacrifice revenue if the product itself is high quality and truly stands out?
A MORE REFINED FIGHT?
If robos instead choose to battle over which algorithm produces the best portfolio returns, it would be an interesting change in fighting styles. Rather than swinging wildly like kids, they would engage in something more refined, like boxing. However, that would open the door to ever-riskier investment strategies and could lead to something more like an arms race. That's a scary proposition when the U.S. stock market is six years into a bull run and pundits fear the easy money is dwindling.
Thankfully, flesh-and-blood advisers don't have to compete on price or portfolio returns. In fact, they probably shouldn't even attempt to best rivals – human or machine – on either of those fronts. Better to raise a strong defense by harnessing the most relevant technology as well as an awareness of clients' needs and aspirations, then launch an equally strong offense by deepening their relationship with clients. Yes, it is possible to both scale your business and make your clients feel connected to you on a personal level.
In my years working with financial advisers and financial software, I've noticed steady trends in client behavior. As technology becomes more essential to peoples' everyday actions, clients become more comfortable with using the latest software in their financial lives.
Nowadays, it's difficult to find someone younger than 60 who lacks some sort of Internet-ready mobile device. Those clients expect advisers to provide personalized communications that work well on smartphones and tablets so they can access all their investment data whenever and wherever they want. Any adviser who's still trying to figure out how
to develop a legitimate-looking website risks falling behind the curve. Clients care about whether advisers have apps that look good on pocket-sized screens and whether those apps respond to clients' fingers when they swipe across those screens.
(More: Why lease when you can own your website?)
What exactly should financial advice apps do? That will differ based on the firm's services and clientele. Advisers managing portfolios for ultra-wealthy retired grandparents might use apps differently than advisers crafting annual budgets for recent college graduates. Nevertheless, some features could appeal to nearly everyone.
An alert tailored to current events that affect a specific client's financial situation – not a mass blast that's irrelevant to half the client base – is a prime example of using technology to capture scale while making each client feel the adviser knows them personally.
CLIENTS IN CONTROL
Allowing clients to upload the financial data of their choosing lets them feel in control while giving the adviser greater insight into the client's total holdings, including assets held elsewhere.
(More: Apps to help advisers manage their emails)
Performance reporting based on data as of close of business the prior day is a powerful trust builder allowing clients to check their total assets, look at separate asset classes and drill down to individual products.
Letting clients see how much concentration risk they face in specific securities is also a near-universal crowd pleaser.
When used properly, apps with those features improve the dialogue advisers have with clients by prompting both parties to ask better questions and give clearer answers. This kind of technology doesn't ape the functions of robo software, and it doesn't do advisers' jobs for them. This kind of technology differentiates real advisers from machines and helps advisers do their jobs better.
There will always be a newer model of gizmo coming out of the Schwabs and Wealthfronts of the world. Sure, through trial and error, over time they will become easier to use and more attractive to clients. But real advisers who offer clients services of real value – empathy, understanding and the ability to save people from their own worst financial instincts – will stand out. Adopting the most relevant technology simply saves advisers from fighting the wrong battles, and prepares them for the necessary ones.
John Michel is founder and CEO of CircleBlack.
