YOU OR A ROBO ADVISOR? - MARCH/APRIL 2014
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M A RCH /A PR IL 2014 YOU OR A ROBO ADVISOR?
Letter from the editor
EDITOR-IN-CHIEF
Edmond Walters
Advisors and industry pundits just crunch numbers and manage
CONTRIBUTORS
alike have been quick to label Robo money. You manage people as well. Sue Bergin
Advisors as a threat to their service. You take into account your clients’ Anthony Cirio
Brynn Dougherty
The competition now, so the thinking personalities, their values, emotions,
Diane Kelly
goes, comes no longer from the families, and the legacies they want to Hillary Sabetta
advisor up the street, but from new leave behind, something no machine Kelly Waltrich
technology online. alone can ever provide. EDITORIAL DESIGN
Emilie Rejician
Such a view is not only unlikely, but Of course, we need to make wise
DOT COM DESIGN
even absurd. use of today’s technology. The power
Ralph Pierre-Louis
Robo Advisors do not intend to of your experienced, personalized
COPY EDITOR
overwhelm the industry and push service when it is supported and Edward Hallowell
human advisors out the door. In fact, enhanced by cutting-edge technology
rightly understood, this technology is virtually limitless, providing a
FOLLOW US
possesses qualities which are just
as redeeming as they are attractive.
For example, Robo Advisors are able
to provide financial guidance to those
who cannot yet afford it, increasing
the security and literacy of those for
whom financial advisors are still a
luxury.
strategic combination of resources
enabling you to scale your workflow,
improve your client service level, and
ultimately grow your business.
It is my hope that this issue of
AdvisorFocus will convince you that
if you learn to partner with new
technology, you can experience
LET US KNOW
WHAT YOU THINK!
Article to suggest? Want
to share your opinions on
AdvisorFocus? Email us at:
Contents
CONTENTS
M A RCH /A PR IL 2014
Feature | 04
advisorfocus@emoneyadvisor.com 5 Ways Robo Advisors Will Change the Way Advisors Work
While some affluent clients unlimited success. and your thoughts will be Raef Lee, Managing Director for the SEI Advisor Network
may be drawn to the convenience Sincerely, sent directly to our editors.
For the Field | 06
and immediacy offered by such The Advisor’s Changing Relationship with Technology
technology, Robo Advisors will never
Trending Topics | 08
replace you. You do much more than Edmond Walters Things You Won't Hear From a Robo Advisor
From the Field | 10
This newsletter has been Robo Advisors and Clients’ Evolving Needs
brought to you by
eMoney Advisor, LLC, Top Five | 12
5 Things Human Advisors Do That Robo Advisors Can’t
1001 E. Hector St, Suite 401,
Conshohocken, PA 19428
www.emoneyadvisor.com
To unsubscribe, send us an
email and we will remove your
address from our mailing list.F E AT U R E
WAYS ROBO ADVISORS
WILL CHANGE THE WAY
ADVISORS WORK
The following is a blog post by Raef Lee, Managing Director
for the SEI Advisor Network. In addition to writing tips for
advisors on technology, Raef is responsible for exploring new > Robo Advisor Overview
services and markets for the SEI Advisor Network. Connect These are early days for Robo Advisor; the market is new, there are many entrants, and several business models are
with him on LinkedIn now or follow him on Twitter: @SEIRaefL. being tried. Here’s an example of the current landscape:
Note that:
Even the name Robo Advisor is derisive. It creates
an image of uncaring, lack of humanity, and inflexibility. It
> What it means to you • As more advisor time is used
and there is more investment
is the term that is now being broadly used by advisors to In our research and discussions with advisors, these management (bottom left
describe the new breed of technical startups (upstarts) that are the ways that robo-advisors are most likely to impact quadrant), the fees rise.
directly connect technical-savvy investors with a suite of you: When more technology is
analytic tools that allow them to create their own financial used (top two quadrants),
plan or investment portfolio. A name this disparaging 1. Increased fee pressure. Robo Advisors offer lower the fees decrease.
shows that advisors have some fear of this new model of fees for technology-centric services. The feeling
goes that this could create lower fee expectations • Nearly all these companies
financial advice. are private; most are venture-
for younger investors.
There are three main types of Robo Advisor: funded and were founded
2. A call for transparency. Investors will want more less than five years ago.
• A pure technology website, devoid of advisors, transparent and appropriate fee structures. The
that allows investors to do everything themselves • The cost of the service ranges
emerging Robo Advisor model is for a fixed fee for
(examples include Motif Investing and Jemstep) from 200 bps (Edelman Online
lower assets (say, under $100,000) and a basis point
for assets under $150K) to
• Companies that include advisors who use fee for larger assets (where the services provided
zero (SigFig). However, very
technology only (the internet) to communicate are broader).
different services are included
with their clients (such as Personal Capital and 3. Pressure to accommodate a younger generation. in the costs. One of the most
Learnvest) Robo Advisors will reach a younger, technically interesting aspects of these
• Established financial service companies that have savvy, growth-accumulating generation who may companies is that their fees
recently expanded their online advice offering (such continue taking advice from the same source as are transparent and clearly
as Vanguard and Edelman Online) they grow wealthier. identified on their websites.
> FUD 4. More technology. Investors may increasingly
The fear, uncertainty, and doubt (FUD) have been
demand that they interact with the advisor in the way
they choose. This will include web conferencing, the > What next?
fanned by all that has been written recently about these ability to schedule time with an advisor online, and So, should advisors be afraid? Robo Advisors will probably succeed in a new market which has largely been ignored
companies. The Wall Street Journal did a detailed piece intuitive ways of working on documents together. by advisors – young, high-income, portfolio accumulators. Advisor sentiment to date has been, “Why go after someone
focusing on the cost of robo-advisor services. Finovate has 5. Access to comparative data. Investors want with no money?” Technology-centric solutions may make this client segment profitable.
highlighted the venture funding behind these companies. information about how they are doing compared to Otherwise, advisors need not be nervous as long as they:
Whether you think that Robo Advisors are the latest their peers, and their advisor to present other views
(both expert and non-expert). This allows investors • Embrace the increased use of technology and social media that clients will increasingly expect in their advisor
fad that will go away, or a vision of how financial advice
to be better informed in the decision making of their communication.
will be given in the future, they will definitely disrupt and
change the way that advisors interact with their clients. financial plan. • Include younger advisors in succession planning who look like and connect with the next client generation.
4 | www.eMoneyAdvisor.com 5THE WAY IT COULD BE.
Many in the financial industry
FOR THE FIELD THE WAY IT IS. fear that the emergence of Robo
THE WAY IT WAS. Fast forward a few years to the Advisors means the end of real
The financial service industry got present. financial planning. People won’t need
its first real taste of tech efficiency Financial advisors have an arsenal human advisors. They will be able to
when Microsoft rolled out their suite of tech tools at their disposal. manage their entire financial picture
of Office products. By the mid-‘90s, Financial planning software allows themselves. This is pure science
Outlook, Powerpoint, and Excel advisors to update and adjust plans fiction.
dominated the industry. with a click of a button and quickly True financial advisors know
THE ADVISOR’S Advisors would manually enter test scenarios. Account-aggregation there will always be a need for
data into spreadsheets, carefully and document-storage technology real, comprehensive advice from a
CHANGING build plans, and present the finished
product, all while managing client
digitizes their filing cabinet and cuts
down manual data entry dramatically.
professional who has the knowledge,
experience, and judgment to provide
RELATIONSHIP interactions through email. It was a
process that would often take weeks
Customer-relations management
software helps advisors identify new
timely and resourceful advice about
an array of complex financial issues,
– if not months – to complete. With growth opportunities. someone who knows his clients
WITH TECHNOLOGY filing cabinets filled with their client’s This technology allows advisors as well as he knows the economic
From desktop PCs to smartphones and beyond, paper statements and receipts, not only to scale their practice, giving landscape. Such advisors are
technology has shaped – and will continue to advisors had the infrastructure them more time to win new business, invaluable because they evaluate and
shape—the way people stay connected and the in place to grow their business but also to enhance their clients’ embrace new technology not with
way businesses interact with their customers. effectively. experience. Mobile technology and giddy enthusiasm, but with humane
The financial service industry is no stranger With the exception of a few the cloud make financial data portable wisdom.
to this phenomenon. As many advisors could platforms designed for wealth and easily accessible, offering clients As time marches forward,
attest, their relationship with technology in the planning, this system allowed the the convenience of interacting with technology will continue to evolve,
past 20 years has evolved, largely in response financial industry to thrive during the their financial picture wherever they allowing businesses to continue to
to their clients’ needs and expectations. Many years that followed. are. scale their workflow, automate their
advisors now seek to stay ahead of the trends. Clients were satisfied with the But even with years of tech tasks, and win new business. Of
What kind of relationship will advisors have sometimes demanding process of advancements, some advisors course, advisors will need to keep
with technology years from now? One can only developing and updating plans—as still revert to their old system of alert to a changing world and be
speculate. But perhaps by looking into the past long as advisors made good on their spreadsheets and manual data entry. ready to adopt, where appropriate,
we can begin to imagine where the industry promise of investment returns. Of While this technology still works for the next technological advancement.
might end up in the future. course, that all changed during the these advisors, it offers neither the But they must never forget that their
financial crisis of 2008. Investor convenience nor the on-demand essential role is to provide sensitive,
confidence in the financial industry service of upgraded technology, two perceptive, personal counsel
plummeted, and advisors needed to of the biggest qualities touted by based on rich familiarity with the
shift their focus to long-term planning the human advisor’s latest threat: clients’ needs for the present
and a better client experience. Robo Advisors. and goals for the future.
6 | www.eMoneyAdvisor.com 7T R E N D I N G
T O P I C S
THINGS YOU WON’T HEAR
FROM A ROBO ADVISOR
“A sabbatical sounds great. Let’s talk “I’ll introduce you to Sally Jones at the “Your bonus is a big part of your family
about how you are going to meet your client appreciation event. I know you two income, but it isn’t covered by most group
obligations and stay on track with your will hit it off. You have a lot in common.” disability policies. I thought I’d look into
long-term goals during that time.” supplemental coverage for you.”
“I know the head of lending over
“With retirement right around the corner, at Big Bank. Maybe he can extend “What is it that you want your money
I can understand why you might want you more credit while you prepare to help you achieve in life?
to cash out of equities and go all in to a to launch your new product.”
bond portfolio. What if those bonds don’t “You should talk to Attorney Simmons.
generate enough returns to beat inflation?” He’s worked with many of my clients, and I
“I’m happy to sponsor you in the
marathon and help you raise think he’ll be incredibly helpful to you.”
“Let’s step back a minute. Do you think you money for kids with cancer.”
are really going to get 10% return every “You said you want to pay for your daughter’s
year from now to the time you retire?” wedding, cover the lion’s share of her
“There’s a great app that helps families
manage allowances. Would you like college expenses, and retire when you are
“I know, it’s worrisome to see your stock me to send you a link to it?” 55. Given your current income and savings,
down for so long. Before we bail, let’s do you think those are realistic goals?”
get some historical perspective.”
“When we created your plan, you were
going to invest $5,000 a year per child “Now that you and Richard are no longer together,
“You could continue to spend as you in the 529 plan. I notice that hasn’t we have to revisit your financial plan to make sure
currently are, but it will dramatically been happening. Do you want to get that you remain on track to achieve your goals.”
change your retirement options. Why don’t together to brainstorm how we can re-
we look together for ways to cut back?” energize your college savings plan?” “Just checking in to see how you are doing.”
8 | www.eMoneyAdvisor.com 9Organized Summary Enhanced Accessibility
of Financials The instant gratification of the internet has
conditioned today’s clients to expect information at
Today’s clients have become accustomed to
any given moment upon request. Their finances are
multitasking. They’re busy with work, family life, aging
no different.
F R OFM E RF E
T HU
E AT IELD parents, etc. As their lives become more complicated,
Web-based Robo technology offers a consolidated
so do their finances.
view of clients’ financial pictures anywhere, anytime,
At times, understanding their complete financial
with access to a suite of tools and information.
picture requires piecing together information from all
This 24/7 accessibility allows clients to tap into a
their advisors, such as the one managing their 401(k),
comprehensive history of their money—from home,
or another managing a different array of investments.
work, or on-the-go—and forgo scheduling a meeting
Such a challenge, requiring expert management and
with an advisor.
coordination, often leaves clients exhausted.
But spending time with an advisor can be viewed
ADVISORS
In an era of instant gratification, clients have come
not as an inconvenience, but as an opportunity. It
to expect easy, comprehensive answers.
is a chance to explore current realities and future
Robo Advisors use aggregation technology to
goals with someone whose judgment in financial
present a concise picture of clients’ financial status
AND CLIENTS’ EVOLVING NEEDS without redirecting them from the web address. This
matters is based on extensive experience and
tested judgment—not on mechanical presentation
added convenience helps simplify clients’ finances
of programmed data.
and makes managing money easier.
Human advisors, however, who use aggregation
Today’s clients are evolving. software like eMoney, can not only present their Cost Efficiency and
clients’ finances in a clear, organized picture, but also
Transparency
Their needs, no longer met by the traditional provide wise counsel about what that picture means
Today’s clients are constantly on the hunt for the
advisor-client “pad and paper” meeting, now in light of those clients’ immediate and long-range
next bargain deal, and Robo Advisors can satisfy
financial goals.
require a robust, visually pleasing technology that desire by offering a package of tools for one
low price.
that addresses a variety of pain points. Help With Personal Finance Clients who use Robo Advisors receive uniform
Managing a budget can be harder than it sounds, investment recommendations based on risk
In a culture driven by high-tech, fast-paced answers, which might explain why only a third of Americans tolerance and goals, a process which appears to
today’s clients have come to expect more—for less. established and stuck to a budget in 2013. offer more transparency to the client.
Robo Advisors can help simplify budgets by With a package of sophisticated analytical tools,
And in many ways, Robo Advisors are rising to tracking a person’s spending and auto-populating Robo Advisors are able to demonstrate their value to
meet the challenge by addressing some very categories based on what the client spent for the the client visually, which helps justify the incurred
specific needs, especially those of people who month. Budgeting options and recommendations, cost.
spending information, and account alerts promise Robo Advisors fill a need by providing financial
cannot yet afford a personal financial advisor. help in streamlining clients’ already hectic lives. help to those who cannot yet afford an advisor or
Here’s what Robo Advisors offer to such clients: As previously noted, however, a skilled financial whose current financial picture makes it less than
advisor, especially one who keeps up with ever- cost effective for advisors to serve them. The key
evolving trends in technology, can offer clients more word to remember, then, is “evolving.” In the fullness
than budgeting options and recommendations based of time such people may very well be in a position to
on data. Sensitive to clients’ history and values, such take advantage of what a skilled and savvy advisor
an advisor can also provide suggestions tailored to fit can provide: insight based on a deep appreciation
personal needs in light of clients’ current situation of that client’s life experience, family situation,
and future goals. personal aspirations, values, and long-term goals.
10 | www.eMoneyAdvisor.com 111. You know their story – their priorities, family
TOP FIVE history, goals – not just their data
When you first meet your clients, you ask them specific questions
about their life that ultimately play a role in how you shape and
deliver your financial advice. After that, you have regular check-ins
5 TH INGS
with your clients and are in touch with their current events. Without
asking the right questions, you would not be able to personalize a
plan that best suits your clients’ evolving needs and without you,
your clients could be misguided and risk their financial wellness.
H U MAN 2. You are prepared to guide your clients
through unexpected life events
ADVISORS
Though absolute certainty is rare, it helps to be prepared for all of
life’s unknowns. As an advisor, you have the ability to assist your
clients in accounting for these “what ifs,” especially since you have
successfully integrated technology to clearly and concisely show
DO THAT
your clients how one event can impact their entire financial future.
3. You help clients take control of their entire
financial picture beyond their investments
Advisors are the complete package. Again, you know your clients’
histories, so you can provide better counsel as to where they should
invest their assets. But you don’t stop there. You also make sure
that your clients stick to their budget and suggest where they might
make adjustments to their lives to better save for future goals.
ADVISORS
4. You provide comprehensive financial plans
While Robo Advisors seem
Because you recognize that clients deserve to choose what best
suits their needs, advisors not only provide insight into the full attractive at first, their lifeless
financial picture, but also offer a variety of strategies for college system generates a response
C AN ’T saving, business building, retirement planning, etc. You don’t
just spit out data based on a formula – you go back through their
history, analyze their present and discuss viable, tangible options.
from one angle – a simple,
self-made formula. When
you think about it, there’s no
5. You encourage your clients to answer tough
questions about their financial life question that real advisors
Recently, eMoney posted a list of “15 Things Human Advisors Do On their own, individuals are prone to avoid discussing sensitive bring more to the table,
that Robo Advisors Can’t,” which outlined several major selling topics such as “How will my/our estate be divided among particularly those who leverage
points for why clients should choose a human advisor over a Robo family members after I/we have passed?” for example. As an
Advisor. We took the top five list items and further developed them advisor, you bring up these difficult subjects and encourage your technology to strengthen the
to demonstrate your value as a financial advisor: clients to face reality and develop a plan before it’s too late. advisor-client relationship.
You can view the full list on ask.emoneyadvisor.com/robo-advisors.
12 | www.eMoneyAdvisor.com 13Our eMoney Story
eMoney serves thousands of leading financial
advisors. We track hundreds of billions of
dollars in assets for hundreds of thousands
of clients, every day. Our software provides a
window for both advisors and clients to see
a complete view of how they are doing at any
time, from anywhere.
Sound great? It is.
Built by advisors for advisors, eMoney’s top
rated* technology helps advisors deepen
client relationships, increase assets under
management, identify new opportunities
and differentiate services for a competitive
advantage. eMoney is staffed with financial
experts, IT superstars, customer service
professionals and creative marketing
designers. We work as your silent partner to
provide you a consolidated data platform to
grow your practice and innovative marketing
materials to connect with your clients.
* The Forrester Wave™ Vendor Summary
* Retirement Income and Distribution Planning - Celent
14 | www.eMoneyAdvisor.comThis newsletter has been brought to you by
eMoney Advisor, LLC, 1001 E. Hector St, Suite 401, Conshohocken, PA 19428
www.emoneyadvisor.com
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