Harnessing robo-advice services for financial planning businesses
As the Australian market starts to warm to first-wave robo-advice, hybrid or blended, advice models are being discussed more frequently as a way to fuse the best of both worlds. These models take two different approaches, one is digital tools based; where the advisers move from doing portfolio construction and investment management themselves, to letting the machines handle these tasks. The advice process itself is generally the same, leveraging the tools allows the adviser to reduce costs and focus more on the value-add they, themselves, deliver to the client.
The other is robo-advice itself, where clients use the service through your portal, they enter all their details online, answer questions and the algorithm generates a portfolio. In this model the adviser is involved to present the plan to the client, answer any questions and to be sure it fits their needs – in essence keeping the valuable relationship and guidance aspects. This approach allows clients to engage in self-serve and take advantage of the much lower cost to access advice whilst still keeping the adviser in the process for the aspects they do best.
In both approaches the core idea is the same – moving the adviser away from doing components that the machines can do as well if not better (portfolio management) and getting back to value add.(cit) As Darren Tedesco describes it:
“…investments are nothing more than a means to an end. Understanding the goal of the investments, how to get the client to stay invested, how to structure and protect assets, how to leverage Social Security strategies, how to meet legacy wishes—that’s where the human aspect of planning comes into play and where advisers outshine their computer counterparts. “ (cit)
Pure robo-advice
Even with next-gen robo-advice the blended models above are likely to be the most popular, particularly during the transition phases as robo-advice starts to be incorporated. It isn’t the only approach though, pure models exist where clients could use the robo-advice service for the entire process. In these cases planning businesses can still benefit from the technology by offering it and embracing it.
Imagine, a young professional that needs basic insurance advice today may be well suited to the low cost, convenient approach of robo-advice. Tomorrow though, as their situation and needs become more complex and their goals change, speaking with a human adviser will be of more value to them and the adviser. The first place they are going to go to find that adviser is the web site that they liked originally and that delivered them insurance advice so effortlessly – your website or portal.
Just by offering the robo-advice tool and engaging with the client in the manner that they are requesting – you have a client who you can potentially add significant value for in the future when their circumstances need it. As other financial needs arise, again, yours would likely be the first place they go for advice.
In the best case scenario robo-advice would help filter better clients to advisers; clients that want your help (as opposed to self-service) and who you can actually add significant value to.
This would be done by companion or adviser-centric robo-advice tools that are set up to identify circumstances and scenarios where a human adviser would be more suited to achieving the client’s goals and delivering the best outcomes. In this manner, the robo-advice tool helps those it can and hands over clients whose needs are more complex and would benefit more from engaging in the regular advice process.
This approach would need providers of robo-advice to work with advisers, enabling them to set or identify these points of divergence and build them in automatically. It would also be important to clearly articulate why the client is being handed over or should seek the advice from a financial planner. If the client starts the process, they enter their details, goals, needs and get then are advised to seek a planner you would likely lose the client due to shattered expectations. Setting this expectation and communicating that via the robo-advice tool will be a key to success with this approach.
Overview of benefits
•Hybrid or blended advice models will allow planners to spend more time with clients or on delivering valued based advice and services.
•Both digital tools and hybrid advice models can reduce administration errors, time lags and further automate processing – a key competitive advantage for business.
•Just offering the robo-advice tools gives you the opportunity to capture clients of the future and additional leads.
•Robo-advice that works with advisers can improve the quality of clients for the adviser by helping simple need clients automatically and directing complex or high value clients to the adviser.