The Coming Challenge of the Text-Only Client | Lord Abbett

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Practice Management

Financial planners are wary of text-only service options, arguing they would contribute further to the commoditization of advice.

This Practice Management article is intended for financial advisors only (registered representatives of broker/dealers or associated persons of Registered Investment Advisors).

Text messaging has spawned its own dialect, led to new laws, and even ended some promising political careers. Yet the financial advice industry is only now beginning to adopt the 26-year-old electronic medium as an official means of client communications.

Compliance tools to record and monitor texts per FINRA regulations have hit the market in the last year, allowing firms to put in place policies that allow for client-advisor texting.

But the industry isn’t embracing texting as a service as other advice fields now offer. Though a number of text-only counseling services exist, featuring therapists available at all hours of the day and night, advisory firms insist that complex conversations about finances cannot be done over text.

One reason for industry caution is a quiet concern that texting will contribute to further commoditization of advice—meaning that the next generation of investors, native to digital messaging, will demand it as a sole avenue of service; as such, advisors will be hard-pressed to come up with a model that is profitable.

Advisors, though, have little choice but to engage. (In the United States, mobile users sent 166 billion text messages in 2016, according to Statista.)

"I hope financial advice does not take place via texting. I hope we don't end up giving automated financial advice via text messages for $5 per month,” says Steve Sanduski, founder of Belay Advisor, a Wisconsin-based consultancy for financial advisors and business executives.

“If financial advice becomes a tech sport, financial advisors will lose. They will be competing against Amazon and Overstock. If it becomes a tech arms race, texting can be bad for financial advisors.”

“Instead of taking time to do a phone call … millennials really simply don’t have the time to do it, and they’d rather send a text message or get text message notifications,” said CLS portfolio manager Kostya Etus.

Merrill Lynch is one of several wealth management firms that recently added capabilities to allow advisors to have text conversations with clients.

“We are finding that more and more people will only communicate via text messaging, and we need to have this means of communication as a compliant option for our advisors,” says Michael Lestina, director of mobile and social collaboration at Merrill Lynch.

Securities America, an independent broker-dealer based in La Vista, Nebraska, unveiled a texting app for about 2,500 affiliated financial advisors at the start of the year, says Gregory Smith, senior vice president of supervision.

Edward Jones started offering texting services for its advisors in 2015, and usage has exploded since then, says Jim Olsen, principal of marketing communications at Edward Jones. About 15,000 advisors are texting with clients, an increase of 70% in the last year, he said. (There are more than 16,000 financial advisors with Edward Jones.) About 500,000 clients are engaged in the company’s texting platform, up by a factor of five from a year ago, Olsen adds.

Those firms offering texting capability noted that most advisors were using text for quick, very limited tasks, such as setting up lunch dates, account activity alerts, e-mail notices, or small notes to mark a milestone, such as a message wishing a happy birthday.

Only Betterment says its text-based service, which it rolled out last July, has provided its clients a channel for advice.

Betterment offers to all its customers the opportunity to text with support staff and licensed advisors when they have a question via a chat tab in its mobile app, says Alex Benke, vice president of advice and investing at Betterment.

“We don’t know what people will ask us. One thing we have noticed, texting has been largely support-based,” says Benke, citing questions of customers asking when a deposit will appear in their account, if a rollover had been completed, or how the market would affect their portfolio’s performance.

Even then, Betterment suggests clients seek another channel when the questions become more complex, and “when it’s clear a person requires a higher need of service,” Benke says.

Betterment uses the carrot of in-depth phone calls with their licensed advisors to lure customers from its lower-tier digital offering to the premium level, which requires a $100,000 minimum balance.

“It’s not an efficient use of time when we have to ask for eight pieces of information,” Benke says about Betterment’s chat feature. “A phone call is more efficient for that type of discussion. We would love to offer [phone calls with licensed advisors] for everyone, but the premium minimum is there to cover our costs.”

Offering a text-only service would be an economic challenge to the existing financial advice model, advisors point out. Other advice fields that provide such offerings do so at reduced costs.

In-office personal therapy sessions range from $75 to $150 an hour, with added costs depending on location and provider. But clients of online therapy service Talkspace pay $49 a week, with the ability to message their personal therapist whenever the mood strikes. Talkspace has a premium offering at $79 a week and couples therapy for the same price.

“There’s no way to have a relationship in text. We are forced to use texting because so many of our clients do,” says Ross Gerber, president and CEO of Gerber Kawasaki, based in Santa Monica, California.

"Texting should enhance the client relationship, not be the client relationship,” Sanduski adds "The more technology becomes ubiquitous, the more we need humanness."

Those arguments ignore the real change happening in client communication preferences, says Lex Sokolin, global director of fintech strategy and partner at Autonomous Research.

Among U.S. millennials and Generation Z, 73% say they communicate digitally more than they do in person, according to enterprise cloud messaging provider LivePerson.

"Nobody wants to talk on the phone with you—full stop," Sokolin says. "People want to text, unless something crazy happens.”

Existing text platforms for financial services, such as Redtail's Speak, can indeed accommodate larger conversations, says David Mehlhorn, Redtail’s director of sales.

One way advisors have been using text to indirectly generate income right now is by using it as a segue to in-person meetings, a common practice among many tech-savvy advisors.

“Texting supports advisors’ personal discussions with clients,” says Lestina of Merrill Lynch. “If the conversation is much more complex, then yes, it will move to in-person, phone, or e-mail with attachments. But many people will go back and forth via text several times before they get to that point.”

Sokolin notes clients are beginning to get used to giving their financial information online, such as to chatbots, which will make customers acclimated to a text-only environment for financial advice in the future. Clients can even make trades via Twitter with TD Ameritrade, he adds, which was just announced in February.

“There is a massive shift to texting as a communications platform,” Sokolin says. “If you as an advisor don’t see this shift, you are not connecting. There is a huge generational divide."

—Sharon Adario


The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett’s products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances. The information contained herein has been provided by sources other than Lord Abbett which are believed to be reliable; however Lord Abbett cannot guarantee the accuracy or completeness of this information.

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