A major deficiency of robo-advisors is their lack of a human touch. Many investors need someone to talk to. Those over 40 years old are hungrier for the human advisor as they may lack the technology savvy of their younger Generation Y counterparts. In most cases, if you’re an investor who wants to speak in person with a financial advisor, the majority of robo-advisors fall short.
Financial advisors have an advantage over robo-advisors with investors who seek a traditional advisor, but a problem remains. Even if those human touch seeking investors want to speak with someone about their money, many also want what robo-advisors offer - lower fees and some areas of investment automation. (For more, see: How Financial Advisors Can Adjust to Robo-advisors.)
Robo-Advisors Relationships with Advisors
There are several robo-advisors that also offer access to human financial advisors. Personal Capital and Rebalance IRA are two, although if your assets don’t meet the minimum amounts for these robo-advisors then you won’t have access to their advisors.
There are several other robo-advisors who white label their services and allow human financial advisory firms to umbrella the robo’s services under their own name. Jemstep is developing a strong relationship with the financial advisory community and white-labeling their platform. The Liftoff platform uses a white labeled robo-advisor for their services. Liftoff is the robo-advisory arm of Ritholz Wealth Management. (For more, see: Robo-Advisors and a Human Touch: Better Together?)
How Human Advisors Can Compete
To beat robo-advisors, or at least compete with them, there are several alternatives. First, the traditional advisor must understand the allure of the robo-advisor. The robo-advisor offers an easy access portal to view investments. Most utilize well researched methods of modern portfolio theory. In most cases, the robo-advisor buys low-fee index funds for the client account in percentages that fit with the investor's risk comfort level. The investment percentages are automatically rebalanced back in line with the investor's preferences on a regular basis. Due to the limited number of portfolio options and the automation, the advisory fees are low.
The robo-advisors understand the impact of the popular social media landscape and use these marketing platforms well. Additionally, they offer robust and easy to maneuver websites. Active profiles on social media platforms such as Twitter Inc., Facebook Inc., Instagram, Pinterest and LinkedIn Corp. make it easy for robo-advisors to share their services and message. Robo-advisory clients can stay in touch across the online locations that they regularly frequent. (For more, see Active Management Enters Robo-Advisor Platforms.)
Here are some ways traditional advisors can compete with robo-advisors.
- Create an engaging and interactive website.
- Develop a social media presence. Follow your clients' social media accounts and share information related to your firm as well as the industry. Financial advisors can grow their own practice by increasing their online footprint.
- Integrate technology into the manual aspects of your firm. Consider purchasing white-labeled automated platforms for the more routine parts of your business, thus freeing up time for the personal financial advisory conversations that differentiate a traditional financial advisory firm.
- Distinguish yourself from the pack by offering add on services such as access to tax, financial and estate planning along with insurance analysis and advice.
By capitalizing on services that only a human financial advisor can provide, you’re making yourself an invaluable part of a client’s financial future. Use the easy to clone aspects of the robo-advisory model while retaining your own personal differentiating features.
The Bottom Line
Both robo-advisors and traditional financial advisory firms have a place in the market. For the traditional firms who want to best robo-advisors, seek out clients who can profit from additional personal financial services while keeping fees manageable by automating the routine aspects of your business. (For more, see: More Firms Set to Join Robo-Advisor Ranks in 2016.)