Time to go with Robo: Customers should drive approaches to RoboAdvisory

Over the last decade, we’ve seen tremendous changes in how the advisory industry provides and delivers services. More than ever, the roboadvisory has become a substantial part of the conversation—and the benefits are enticing.

Instead of the traditional, human-based advisory system favored in the past, roboadvisories can offer investors a number of distinct advantages. These include increased transparency into investment options and decisions; increased accessibility through low or no-minimum and fees; and enhanced customer experience via the web and mobile apps.

Robos can also handle more rote tasks, including portfolio optimization and analysis, portfolio monitoring and rebalancing, and performance reporting and portfolio manager communications—saving the business and customer time and resources.

Roboadvisors currently account for approximately $400 billion in assets under management (AUM) and several well-known institutes predict that roboadvisors will manage $489 billion in assets by 2020 and $16 trillion in assets by 2025. This means within the next eight years, roboadvisors will manage three times as many assets as BlackRock, the world’s biggest asset manager, does today.

While technology represents a clear given for the future, it is not all encompassing. We must take a considered approach; after all, a main benefit of working with humans centers on the “trust” element and the ability to execute on nuance.

Technology constitutes a crucial part of reaching your audience. But in the race to reach customers, which components stand out as the ones advisory businesses need to consider?

Why customer differences make the big difference

Technology for technology’s sake does not work. To simply deploy a roboadvisor or build out a digital practice will not necessarily fulfill customer needs. More importantly you must consider a new, fresh technological approach when thinking of your clients from a generational perspective.
This adds up to several marked differences:

    • Baby boomers, for example, will continue as the wealthiest generation in the U.S. until about 2030, with their share of net household wealth peaking at 50 percent in 2020.
    • Generation X will experience the highest net wealth growth rate, jumping from 14 percent in 2015 to more than 31 percent in 2030.
    • Home values will appreciate at a slower pace versus the past two decades due to slowing population growth.

With the tally starting in 2011, more than 76 million baby boomers will retire by 2029 with the largest transference of wealth in U.S. history—$29 trillion in investable assets and up to $100 trillion including real estate. (Millennials will be the main beneficiaries of this historic passing of the financial baton.)

Staging tech by consumer life stages

People in each generation possess different needs at different life stages. Therefore, when each investor looks to establish accounts (with specific goals), businesses have to consider what they aim to do. This way you can better understand how to engage with prospective customers and make interactions more relevant. Additionally, your business will need to understand how generations differ in terms of technology use and what they value as it relates to the intended customer journey.

This means balancing technology with the human element—and trust is one aspect unique to roboadvisory. But fundamental areas exist that the roboadvisory cannot (yet) replace, such as more personalized risk profiling, further analysis and manager due diligence. Professionals can also provide context to automated recommendations in areas such as tax and financial planning, investment policy statement, asset allocation, estate planning and charitable giving.

Putting it all together: Advice for advisors

Understanding this, firms will have to think of the functionality they deliver to the client, where they want to change customer interaction and what the new engagement model will look like.

This will require careful strategic planning when it comes to technology. If you believe that advisors will serve your customers better, then the customer relationship management systems will stand at the forefront of your approach and you should integrate all disparate data and systems into a single user interface.

Ultimately, if you foresee a tech-heavy engagement model, you will endeavor to increase its capability (vis-a-vis products and services) into a digital journey. Wherever you can provide do-it-yourself capabilities to the client, you will do so.

If you believe a human advisor/roboadvisor hybrid is the way to go, this will mean increased products and services but on an incremental model while you deliver tools and systems that will improve the advisor’s ability (such as education, planning, performance, monitoring) to navigate the investor/advisor interaction.

In every scenario, we see the next wave of technology emerging. Systems deliver more data on a real-time basis; campaigns, lead nurturing and onboarding are turning into truly digital experiences. Finally, the industry is about to embrace the age of machine learning on a full-time basis.

Digital advice has officially passed the test and the boom about to occur is inevitable. Who then will win? The future belongs to the firm that can advance digital advisory beyond simple asset allocation and onboarding into a technology based on full-service wealth management.

If you haven’t given thought to any of this, or have thus far failed to build, buy and/or lease a robo-tech platform, then your business faces inevitable risk. But with that also comes the potential for reward. And that is something smart business leaders don’t need an advisor, robo or otherwise, to tell them.