Several years ago there were some who thought that the rise of the robo-advisor might signal the demise of the traditional human financial advisor. Clearly this has not been the case and likely will not be in the foreseeable future, if ever. However, robo-advisors have made financial advisors, asset managers and financial services firms more conscious of the need to be able to use technology to deliver advice to clients. Technology has long played a role in the business of being a financial advisor.

What is Your Value Proposition?

Most robo-advisors will put together a portfolio of exchange-traded funds (ETFs) for a fee that is less than the typical 1% or 1.25% that many traditional financial advisors charge. If you are just offering clients investment advice via mutual funds and ETFs and charging 1% or more, it has become harder to justify your fees in the era of the robo-advisor. Financial advisors who offer an array of advice beyond just an allocated portfolio have a true value proposition to tout to clients and prospects.

For many clients the basic investment services offered by robo-advisors is sufficient. However, many clients have needs that go beyond this. Whether it is estate planning, managing stock options and restricted shares from their employer, determining when and how to best file for Social Security, dealing with net unrealized appreciation in company shares held in a retirement and a multitude of other specialized financial planning issues, financial advisors who can help clients with these types of issues can better justify their fees with this added value proposition. (For more, see: How Financial Advisors Can Adjust to Robo Advisors.)


Over the past year a number of options for traditional financial advisors to incorporate robo-advisor technology have emerged. In fact, hybrid platforms incorporating robo technology with human advice are all the rage in the industry. As a financial advisor your job is to provide advice to your clients based upon your knowledge and your experience. Technology has been a factor in the financial advice business for as long as I can remember. Typically, this has centered around software for financial planning and investment analysis. Additionally, automating the contact management function has been another big area.

The advent of the robo advisor and similar advice delivery technology is another aspect of this trend for financial advisors to understand and utilize where appropriate.

Review Fee Structure

There has been a high degree of fee compression in the financial advisory world. The advent of robo-advisors with their low cost ETF portfolios is just another aspect of this. For many financial advisors this may be cause to review their fee structure and perhaps even look to make their fees/services a bit more a la carte. For example, for clients who only need portfolio management services in many cases the fees can be lowered. Many financial advisors already charge a separate fee for financial planning and may charge for specialized advice as needed. This approach also serves to let clients know that financial planning is not just a “throw-in” type service but rather that is has a real, tangible value. (For more, see: How Technology Helps Financial Advisors.)

Cultivate Younger Clients

Gen X and millennial clients have been major users of robo-advisors. The use of robo technology by traditional financial advisors is certainly a way for firms interested in working with this group to cultivate them as clients. Many traditional financial advisors are looking for clients with minimum investable assets of $500,000 to a $1 million or more. These clients are often older and have hands-on advice needs that require a lot of personal attention. Younger clients with fewer hands-on advice needs and often with less money to invest still want quality financial advice at a reasonable price. Additionally, this generation of clients is used to doing things online and is comfortable using technology in all aspects of their lives.

A growing number of traditional financial advisors are using robo-advisor platforms to work with this group of emerging clients. Traditional robo-advisor Betterment offers an institutional service that allows financial advisors to utilize their technology for their clients. Charles Schwab Corp. (SCHW) introduced an institutional version of their robo-advisor platform called Institutional Intelligent Portfolios. This allows financial advisors who custody their client’s assets with Schwab Institutional to utilize the Intelligent Portfolios technology but also customize the portfolios based on their firm’s preferences for their clients. (For more, see: Schwab Launches Robo-Advisor for Advisors.)

Fidelity Investments had struck up a partnership with Betterment for advisors who custody with their institutional arm, but they are reportedly looking to develop their own robo platform. A number of traditional financial advisors have developed their own robo or online advice portals as well. The ones I’ve looked at seem to offer a “lite” version of their full service offering. Most offer the ability to communicate with an advisor at the firm either via phone or electronically as well. The benefit for these younger clients is that they start a relationship with an established firm and usually with an established custodian as well.

For the traditional advisory firms this is a way to start and grow relationships with these younger clients, especially for firms that are looking to grow well into the future and develop a team of younger advisors this is critical. Additionally, if the firm wants to have value as a merger partner or if the owner eventually wants to sell, this stream of ongoing clients can prove valuable as well. (For more, see: A Financial Advisor's Guide to Millennial Clients.)

Gen Xers and millennials stand to inherit substantial assets from their Baby Boomer parents and grandparents over the next 20 years or so. Working with these clients now as they embark on their careers is a great way to build relationships that can last a lifetime. When these now younger clients have greater needs either via an inheritance or simply as they succeed and prosper on their own, incumbent financial advisors will certainly have an edge to retain their business as more traditional clients down the road.

The Bottom Line

Rather than serving as a death knell for traditional financial advisors, robo-advisors have provided a much needed kick in the backside to many advisors and firms about how to utilize technology and how to serve the next generation of clients. Financial advisors constantly need to be aware of changes in their industry and be prepared to capitalize on the opportunities presented by these changes. (For more, see: Who Wins With Robo-Advisors? Everyone?)

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