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Adding Real Value in the Face of Robo Encroachment

By Peter McDougall July 30, 2015

Though initially slow to gather investor assets, low-cost robo-advisors have begun to accumulate an impressive amount over the past year or so. The largest, Wealthfront, just topped $2 billion under management. More impressive, big platform providers like Fidelity and Envestnet have bought or cut deals with robos as the backbone for consumer or institutional offerings.

To compete with this automation juggernaut, experts say advisors will need to show they add value. We spoke with three advisors to find out how they’ve gone the extra mile for their clients in recent years.

Michael Hatch, a principal of the Sterling Group in Pasadena, Calif., says his team provides extra value by assisting in real estate transactions. “For the most part, clients haven’t been involved in many of these transactions in their life,” he says.

Beyond helping a client to actually sell or buy a home, Hatch’s team, which manages about $500 million, also gets involved in such things as finding a contractor to make repairs and hiring a consultant to stage a house for sale. For this, Hatch typically charges a small flat fee if he feels it will take more than a few hours of his time. Walking clients through a private transaction in this way means they can avoid the bulk of the standard 6% realtor commission.

Michael Hatch

“We try to position ourselves as the go-to person for the clients to consult before they close the deal,” Hatch tells FA-IQ.

In one instance, a client had an interested buyer but wanted to keep all options open. So Hatch found a realtor who was willing to get involved while exempting the interested party from any commission fee. On the realtor’s advice, Hatch’s team helped spruce up the home and touch up the landscaping. And when the interested party eventually decided to buy, Hatch’s team walked the client through the private sale process. “It’s not a big issue for us, but it cements the client relationship forever if it wasn’t already firm.”

Michael Farr is president and CEO of Farr, Miller & Washington, a Washington, D.C.-headquartered investment firm managing $1.2 billion. Farr has seen clients struggle with diminished capacity as they age, but he has chosen to keep them engaged and active even as he protects them from the potential dangers of cognitive decline.

One particular retired client started sounding confused on calls. “He was not making sense and not remembering things from conversation to conversation,” Farr recalls. When he spoke to the client’s wife about his concerns, she was initially defensive. In fact, she agreed to step in only when Farr threatened in writing to resign if she didn’t appoint a trustee. “You cannot underreact once you recognize undiminished capacity,” he says. “You have to be firm and clear with what needs to be done.”

With a trustee in place, Farr and his team consulted with physicians and gerontologists to see what they could do. The advice: Keep the client as engaged as possible. So Farr had a junior advisor continue with the client’s twice-a-week phone calls to discuss the markets. These meetings didn’t impact how the assets were managed — they were phantom orders — but they made the client happy and helped him feel relevant. “It doesn’t cost us much time, and I think it’s only fair for someone who has been so faithful to our business for so long,” Farr says.

Linda Conti, senior financial advisor with David A. Noyes & Company, an Indianapolis-based wealth-management firm with $500 million under management, helped a client as she dealt with a rare brain disorder called progressive supranuclear palsy. The woman had no family nearby, other than an elderly mother — and she was rapidly losing the ability to manage her finances. Conti agreed to take the woman on as a client at the request of a neighbor who was already a client. “The expected life span after diagnosis was just two to three years,” Conti says.

Conti immediately set to work on an asset plan and a bill-payment plan, and she had the neighbor named as guardian — as per the client’s wishes. She went in person to the Social Security office to advocate for disability benefits on the woman’s behalf and helped put her home on the market. She even stored a few personal effects the client wanted to leave to distant relatives. But perhaps the most unique request was to help research what organization should receive the client’s brain after she died.

Conti got the call at 4 a.m. on the night the client died. She contacted the research organization, which sent someone to the hospital to pick up the donated brain. While she received compensation for the financial professional services she rendered, Conti did not charge for her other efforts.

“I have only 100 families as clients, and I work hard to develop these deeper relationships,” Conti says. “I do it because morally we have an obligation to take care of our clients, whatever that entails.”