Why 66% Of Robo-Advisor Clients Think Human Advisors Do A Better Job
If you are a financial advisor, are you afraid of losing business — and of losing income as well as pricing power — to robo-advisors? Negative headlines can set your heartbeat racing. But instead of panicking, use that stab of Adrenalin to your advantage. Think of it as strategic jui-jitsu.
Sure, robo-advisors are growing. Their assets under management (AUM) will mushroom to $900 billion by next year, advisory firm KPMG forecast recently, nearly double this year's level. And those AUM are expected to skyrocket to $2.2 trillion by 2020. And, yes, much of that growth will come from clients shifting their accounts to robo-advisors, away from traditional advisors, KPMG warned.
But the best way for an individual flesh-and-blood financial advisor to defend him- or herself is to play solid offense, says consulting and research firm Spectrem Group. Don't let clients decide whether to defect to a robo-advisor or to shift assets on their own. Be proactive and initiate the dialogue, says Spectrem director Randy Wostratzky. That helps you shape clients' thought processes. Explain the pros and cons of a robo-advisor for clients based on each one's personalized needs. That way, you can explain services and benefits you can provide that a robo-advisor cannot.
That will cut down on client defections and asset flight.
"People assume the clients decision about robos is all or nothing," Wostratzky said. "But it isn't. Clients use robos and human advisors in different combinations, for different services."
Understanding what those combinations are can help you talk a client through the process of deciding whether or not to use a robo-advisor in addition to your own services or instead of them.
Likewise, if you are an investor considering whether to use a robo- or human advisor, understanding a human financial advisor's strengths can help you make a decision that best suits your specific needs and life circumstances.
Any human financial advisor should be reassured by what Spectrem's research shows about use of robo-advisors among wealthy clients — those who have at least $100,000 in liquid net worth.
Foremost, only 13% of those investors who do work with a robo-advisor use the robo as their primary financial advisor. In contrast, 18% use a full-service brokers and 13% use a discount broker. Accountants and independent financial planners are each the primary financial advisors for 10% of wealthy, robo-advisor using investors who were surveyed. Additional types of human advisors have smaller shares of the primary advisor market.
And wealthy investors do not put all of their eggs into one basket. Among robo-using wealthy investors, 35% of their assets are controlled by the investor, not the robo-advisor. Those investors may use the robo for help with other tasks, such as forming a general financial plan. Or they may use the robo to obtain access to a trading platform.
Another 37% of those investors' assets are invested through a robo-advisor. But 28% of their assets are invested with another financial advisor — basically, a human advisor.
The more than your clients understand that they can continue to work with you as well as a robo-advisor, the less likely you are to lose a client outright, Wostratzky says. And the fewer client assets you are likely to lose.
Most of all, make the benefits that you as a human advisor provide clear. Emphasize these points, Wostratzky says:
- Fees. "Educate clients or prospects about fees in general and how your fees compare to various robos'," Wostratzky said. "Make it clear that in exchange for your fees, a client is getting service that is customized to his needs."
- Human touch. Investors tend to believe that human financial advisors are better at creating financial plans and making adjustments to cope with major life events. Even among robo-advisor users, 66% believe human advisors do a better job of creating a financial plan. Just 13% think a robo-advisor is better. Twenty-one percent think it's a tossup. And 50% expect a human advisor to do a better job of adjusting investments to cope with life changes, while only 23% think a robo-advisor does that better. "Start any discussion by making this point — no robo-advisor can provide certain essential services as well as you can," Wostratzky said. "Then live up to it."
- Coping with complexity. As clients age and their assets grow, their financial needs become more complex. You can provide services such as estate planning that many robo-advisors do not offer or don't specialize in.
- Analysis. Robo-advisors have a reputation for providing objective guidance, uncluttered by emotion. "Emphasize to clients and prospects that you can interpret and react to events in the world and markets," he said. A robo-advisor may not do that at all, or may not be able to present the information as reassuringly as you can.
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