To Compete with Robos, FAs Must Reinvent
Doing more of the same will cost advisors their high net worth clients who will flock to robos, Dan Solin writes in Advisor Perspectives.
The capabilities of automated advice platforms are constantly expanding, according to Solin, a former financial advisor who coaches advisors. Most recently, robo-advice pioneer Betterment announced capabilities to minimize taxes, for example, he writes. Other aspects of financial planning, including insurance advice and even estate planning, will likely become increasingly automated as well, according to Solin.
Meanwhile, investors are highly sensitive to investment advice fees: while 60% of investors don’t know what they pay their advisors, among those who do, 72% say they would switch to a lower-fee advisor, according to A.T. Kearney data cited by Solin. According to Uday Singh, a partner in the financial institutions practice of A.T. Kearney, fee pressure will continue rising as a result of the robos, Solin writes.
Many investors with less than $250,000 in investable assets who want some help allocating their investments are likely better off with robo-advisors, he writes. But even investors with $1 million or more may ignore the benefits of a full-service advisor, opting instead to work with a fee-only insurance advisor and an accounting firm combined with the services of a hybrid advice option such as that provided by Vanguard, Solin says.
Advisors who want to retain high net worth clients therefore need to revamp their services, with a focus on what they bring to the table that robos can’t offer, according to Solin. He also recommends that advisors re-evaluate their fee structures and implement technology to make their services more competitive as well as more efficient.
Advisors should also think about expanding their range of services to cover some areas clients would otherwise seek elsewhere, Solin writes. Finally, focusing on a particular niche rather than serving everyone could be the key to differentiating an advice practice, he writes. But running a practice the same as before simply won’t stand up to robo competition, according to Solin.