Robots, once stuff of imagination, are increasingly prevalent and important in our daily lives. They assist doctors in surgeries, eliminate jobs on assembly lines, and play thought-provoking characters in the movies.
We do not typically find robots offering emotional response; unlike R2-D2 or C-3PO or even The Tin Woodman from the Wizard of Oz who got rusted and stuck when tears flowed.
But, robots do contribute to our emotional satisfaction, as evidenced by increasingly popular robo-advisors that assist consumers in making investment choices, plans, and savings strategies.
This creates a disruption for those in the financial services industry who may feel themselves usurped by technology.
“Robo-advisers Want to Plan Your Clients’ Future,” notes Investment News. The article explains that robo-advisors first made appearance in the late 2000s to the amusement and skepticism of some industry stakeholders.
“In the end, however, it may be robo-advisers who have the last laugh,” notes the author.
New technology exists to help consumers do more than allocate assets. Strategists are using it to determine “how design can help influence user behavior.”
Companies dedicate millions of dollars “into developing mathematical formulas and behavioral maps” to implement automation in areas such as retirement planning, trusts and estates, and providing aid in “helping clients react to life’s major emotional events.”
Elliot Weissbluth, founder of advisory firm HighTower Advisors, notes, “Robo technologies are going to have profound impact on the industry…They’re going to dislodge and disintermediate unskilled and mediocre financial advisers.”
This week: A look at the function and impact of robo-advisors on your business and members.
‘Robots are good at things that are structured.’ –Vijay Kumar, Indian roboticist
First, a look at the magnitude of robo-advisor disruption: Sources debate, but disruption might be greater than you expect.
“Disruptive effects of robo-advisors and automated investment services to the traditional wealth management industry are growing,” notes MyPrivateBanking Research in Robo-Advisors 2.0. After one year of following the progress of such automation, authors find “the movement has been growing up.”
Three main trends:
1. Wealth management providers are becoming receptive. Schwab Intelligent Portfolios and other banks are getting on board or creating their own automated solutions.
2. Some robo-advisors are becoming technology providers, “offering white label solutions and software platforms to other advisors or are seeking alliances with established…players.” Fidelity and Betterment, for example, are collaborating.
3. Growing opportunities to enhance robo-advisors with other automated services in financial planning that allow algorithmic solutions and “provide a highly cost effective hybrid human and automated planning solution.”
In short, robo-advising will require providers reconsider the traditional practice of face-to-face contact. New technologies allow more personal outreach with greater efficiency.
Another view provided by a Pershing study shows “Advisor’s views nearly tied on whether digital advice is irrelevant or competition to their business.”
Here, research reveals only 19% of advisors believe digital advice can be complementary, although recognition of technological change is noted. Few advisors currently use automation and the biggest opportunities for them are in automation of “low-value tasks.”
Advisor survey highlights suggest:
Price is a threatening factor of automation, say advisors. More than 75% think digital will hurt their business. And, another cited survey reveals more than 50% of investors say advice offered by advisors “is not worth the one percent fee.”
The study suggests advisors respond to technological threat with plans to adopt technology, personalize high-touch experiences, improve their own productivity using technology to automate some functions, define their own value proposition, and “be realistic about focus of the practice.”
Meanwhile, doubters pose their opinions in another article, “Why the Robo Advisor Model Won’t Last.” Detractors say the business model cannot work without “achieving massive scale, AUM [assets under management] and premium features that people will pay for.”
Says one spokesman, “I really think the winner is going to be a balance between having that personal relationship…and the advantages of services…a robo advisor provides.”
‘Kids love robots. They’re this fanciful, cool thing.’ --Cynthia Breazeal, robotics professor
The literature provides suggestions on how advisors might adapt to disruption.
“Robo Firms Gaining Traction with Traditional Advisors,” notes cnbc.com. One advisor partnered with a robo-advisor. “No one comes close to their [low] cost…I thought it was perfect for my business.”
Robo-advisors currently hold $19 billion at the end of 2014; of $36.8 trillion in all managed assets. Expectations are that fees will fall and consumer expectations will rise.
Lower costs offered to providers via robo-advisors allow personal advisors to charge below the standard 1%, and allowing them to share the wealth with clients who may not meet minimum balance requirements for wealth management services otherwise.
“It’s not about humans [vs.] technology; it’s about how humans employ technology.”
See also “Combined Human and Robo Advisors Show Promise,” per planadviser.com. Here, a Charles Schwab report reveals “working-age Americans are warming to financial advice that is delivered through a combination of personal interaction and technology tools.”
Nine of 10 consumers think technology is a necessity, not a distraction. Therefore, trust grows among consumers in technological financial dealings. Still, “affluent investors are often cited as favoring personal adviser relationships” although age is not a factor in that.
The majority want technology as part of the process, but when deciding between either only personal advice or computer algorithms, 66% want the human touch.
Generational preferences are detailed in this interesting analysis.
‘Our worst comes out when we behave like robots or professionals.’ --Fernando Flores, Chilean engineer
ThinkAdvisor suggests considerations for adaptation to technology. A question to ask yourself, as an advisor, is “why am I here?” the article notes. Advisors need to know client objectives.
“Technology can only enable a goal if you know what the client wants to achieve.” It is anticipated that consumer desire for emotional connection will give advisors an edge.
It is important for advisors to articulate their value proposition in that regard, and learn to balance high-tech and high-touch.
Even the disruption of robo-advisor business models faces disruption. Google poses such threat, as outlined at wealthmanagement.com. The company recently invested in a startup to assist consumers in choosing stocks, and could be a precursor to involvement the “the robo-advisor game.”
Change is constant, and a variety of opinions exist as to the capability of robo-advisors to take over the financial advice industry. But technology will make an impact one way or another.
“We’re fascinated with robots because they are reflections of ourselves,” says robotics researcher Ken Goldberg.
It’s up to you to adapt and fascinate your members.