Why robo-advice is going to become human

By Mark Trousdale on Tuesday 29 August 2017

OpinionSavings and Investment

Mark Trousdale, executive vice president at InvestCloud, argues that the future of digital wealth management is a hybrid model.

As they say, everything has its limit. Only a few short years ago, pure robo-advice was enough – but not anymore.

Robo offers an enhanced digital experience compared with most traditional investment advice platforms – with greater automation and at a lower price point. It provides a service and experience highly appealing to an increasingly diversified and forward-thinking investor base.

But as investment advice has become increasingly commoditised, even investors generally disposed toward self-service are starting to miss the human element – and are demanding it back. Meanwhile, established wealth management firms and financial institutions are realising that they have some distinct competitive advantages they forgot about. These include the time-honed know-how about the service levels wealthy – and mass affluent – clients expect, teams of portfolios managers skilled in portfolio construction, in addition to ready access to an investment product supply chain.

From both camps, firms are seeking to put the spirit back into the machine.

No technological singularity… yet

Despite all the hype about the potential of artificial intelligence, most first-generation robos focused on solving a relatively contained issue – that pure asset allocation and investment management could and should be commoditised, like transaction-based fees before them. It wasn’t about making the machines smarter in robo. It was about making sure humans who couldn’t beat the market consistently weren’t collecting inordinately high compensation for the exercise.

As a result, improving the value that truly standout financial advisors provide largely fell by the wayside. This includes services like goals-based planning, counsel during the transfer of wealth across generations, succession planning, trusteeship and good, old-fashioned empathy. Sometimes it’s as simple as wanting a friendly, familiar face listening to you articulate your life objectives and concerns.

It’s not to say that machines can’t learn to provide these services – it’s just that on the whole, they don’t.

Changing tides

Earlier this year, Accenture published findings based on a survey of over 1,300 North American investors representing all income and age brackets. It showed that over two-thirds of emerging wealthy and high-net-worth investors in North America favor hybrid advice. This was not just over robo-advice – but also over traditional human-only advice. In addition, nearly the same proportion says they get better financial planning advice through hybrid channels, including for traditionally human-intensive processes like estate and tax planning.

This means it isn’t just about remedying an over-simplification of investor needs by robos. It’s about marrying the digital experience and digital automation to human processes and insights.

Not surprisingly, both financial institutions and robos are taking notice and reacting. A few months ago, Charles Schwab launched Schwab Intelligent Advisory, their digital advice offering integrating access to human advisors via both phone and video conference. Only two months earlier, Betterment made a similar move.

Survival means being the most adaptable to change

Mid-scale wealth managers are well poised to take advantage of this trend. Fortuitously positioned at the mid-point between the poles of the advice spectrum, advisors at wealth management firms tend to have highly personalised relationships with their clients yet operate businesses for which operational efficiency matters. The best ones offer flexible episodic advice – life advice that goes beyond portfolio construction and rebalancing.

In order to evolve into an effective hybrid model, human talent must be matched to top-notch technology. For established robos, the challenge is one of hiring the right people and maintaining scale through growth, partnership or M&A activity. But for wealth managers and diversified financial institutions, it’s about creating the right digital platform as quickly and cost-effectively as possible. This is where partnering with the right enabler is the key differentiator, because organisational barriers tend to hamper nimbleness, and they usually get worse the larger the organisation is.

While 2016 and 2017 were robust years of strategic investments, partnerships and acquisitions in the digital advice space, there are bound to be some very interesting developments in the coming 12 months. Small and large digital advice players will increasingly converge as digital action – not just digital strategy – moves from optional to mission-critical.

This artilcle first appeared on www.roboadvicenews.com

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