Does Robo-Advice have a place in a Premium Advice Offering?

Does Robo-Advice have a place in a Premium Advice Offering?

22-11-2016 | Insight

Technology has been conspiring to lower price points of services for some time now, and I've been left with no doubt recently about Silicon Valley's desire to make financial advice affordable for the masses.

What about for businesses whose goal isn't to do it cheap? What about for those whose job is to do complex, comprehensive and top quality for clients who are willing to pay for the best?

  • Stewart Bell
    Business Coach at Audere Coaching & Consulting

Stewart Bell is Founder & Business Coach at Audere Coaching & Consulting. The opinions and statements are deemed to be those of the author, and do not represent the view of Robeco.

Does robo-advice have a part to play for premium firms?

There have been a stream of research papers that emerged over the past few years, each loaded with conclusions about HNW and mass affluent clients' willingness to engage with digital advice.

There are too many to list in total, but a few of the more interesting include:

  • Spectrems 2014 study concluded that the proportion of the premium end of the market using social media continues to surge. They're not only comfortable embracing the online world for social activities, 24% of affluent investors surveyed indicated they had "shifted investments or begun (or changed) their relationships with investment providers due to information derived from social media".
  • MyPrivateBanking's survey from August this year seemed to carry an even stronger message - "The majority of affluent and high-net-worth individuals recognize the potential of robo-advisors and automated investment services to add value to their wealth management services". Their study also suggested that adoption of automated wealth advice is happening fastest of all in the High Net Worth segment in terms of usage, both in the US and UK, concluding that the "wealth management industry's future will be in automated advisory services". Almost to support this, Betterment even has a page on their site dedicated to HNW investors.
  • Accenture went a step further their 2015 paper Serving the High Net Worth Investor, suggesting that not only do many HNW investors prefer digital engagement, they also see it as totally complementary to a human to human relationship.

It's easy to focus on the "robo is awesome” message. There are however plenty of dissenting voices around the sustainability of it all, relatively slow growth and market penetration, and a bunch of other reasons not to entrust wealth to the "robots".

There's a lot of emotion flying around, as you'd expect with a shift of this nature. Uber is almost a modern day parable for a failure to change the offer to suit the changing demand, and the example is never far from the argument of why change is needed.

However rather than it being a 'have to' question, I would ask why premium advice firms wouldn't want to explore the addition of a so-called robo-capability.

Clients are less and less swayed by expertise alone, seeking to deal with advisers who have demonstrable system at the heart of their business. A strong and polished digital presence has become more of a hygiene factor than a selling point. Expectations are shifting fast.

You have the rise of the HENRYs (High Income Not Yet Rich). Gen X, affluent and happy to engage with solutions where step one isn't a face-to-face (perceived) sales appointment.

Though we can argue about the scale of the demand, it is there.

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A third option is emerging

Both in the US and in Australia, the blended model of human and robo-advisers working together seems to be emerging as a winner. Stockspot have pivoted, as have Betterment. An open-source alternative to Acorns is surely not far away.

This can and will work for advisers too

When I talk to firms about the challenges they face - getting engagement, generating more quality leads, reducing admin burden, increase client literacy and reducing dependence on staff - these are all things that this type of automation can offer.

To share a quote from my recent trip; technological innovation's aim isn't to create jobs, it's to create code. Those who own the code, define the future of the industry it touches.

Silicon Valley is building software to eat our world, but the evidence is suggesting the human touch is still needed.

The solution for advice firms, including those with premium leanings, is to embrace and get involved in the creation. Build and own the system, instead of just seeing clients.

However, all things start with small steps.  So, rather than seek to build a robo advice platform as a first step, here are five ways you start to explore the opportunity.

  1. Begin to consider how you can integrate tech now. Online calendar booking (Calendly), video (coVideo), audio messaging (Voxer), knowledge centres (innergo) and other online marketing tools are a start. Work your way up from there.
  2. Scan the market. There are white label tools beginning to emerge, though we are still in an infancy of having a total solution. We've already mentioned Stockspot in Australia have pivoted, MapMyPlan are something I'm following actively, and more are following and wanting to partner with advice firms with a vision.
  3. Realign your service model. Platinum, Gold and Silver are done. Consider offering service models that support self-directed wealth creators (DIY), those who want total outsourcing (done for you) and those who sit in between and want to partner.
  4. Expand away from marketing your services as investment-centric if you haven't yet. It's led to a zero sum pricing game in the US. It's too hard to compete against robo-advice in this way and, anyway, it's not where real client value lives.
  5. Finally (and most seriously), start asking some hard questions. What does your firm look like with ten times the staff? How about if each adviser had to manage 1000 clients rather than 100? What does a $50 subscription to your advisory program look like? How will advice be given in 5, 10 or 20 years? If you're not asking them now, you can be sure Silicon Valley is, and not even the premium end of the market will escape the attention.



What is a Wholesale Client?
A person or entity is a “wholesale client” if they satisfy the requirements of section 761G of the Corporations Act.
This commonly includes a person or entity:

  • who holds an Australian Financial Services License
  • who has or controls at least $10 million (and may include funds held by an associate or under a trust that the person manages)
  • that is a body regulated by APRA other than a trustee of:
    (i) a superannuation fund;
    (ii) an approved deposit fund;
    (iii) a pooled superannuation trust; or
    (iv) a public sector superannuation scheme.
    within the meaning of the Superannuation Industry (Supervision) Act 1993
  • that is a body registered under the Financial Corporations Act 1974.
  • that is a trustee of:
    (i) a superannuation fund; or
    (ii) an approved deposit fund; or
    (iii) a pooled superannuation trust; or
    (iv) a public sector superannuation scheme
    within the meaning of the Superannuation Industry (Supervision) Act 1993 and the fund, trust or scheme has net assets of at least $10 million.
  • that is a listed entity or a related body corporate of a listed entity
  • that is an exempt public authority
  • that is a body corporate, or an unincorporated body, that:
    (i) carries on a business of investment in financial products, interests in land or other investments; and
    (ii) for those purposes, invests funds received (directly or indirectly) following an offer or invitation to the public, within the meaning of section 82 of the Corporations Act 2001, the terms of which provided for the funds subscribed to be invested for those purposes.
  • that is a foreign entity which, if established or incorporated in Australia, would be covered by one of the preceding paragraphs.
I Disagree