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Practice Management

A young advisor sees the benefits in working side by side with technology.

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

Maybe it is generational, but as a millennial, albeit an old one at 34, I view the relationship between robo advisors and human advisors as similar to the relationship between autopilot technology and commercial pilots—yes, autopilot technology is a great tool to assist the captain, but I am not getting on a plane flown solely by a machine. Robo advisors represent a similar, potentially complementary, relationship for thoughtful planners.

Embracing robo advisor technology will make you more efficient and may increase your ability to deliver more disciplined solutions to clients—but it will not, however, replace the need for you entirely.

Many in our industry have responded with fear and defensiveness as automated investment onboarding and management has gained traction. From conferences to industry articles to corporate meetings, much breath and ink has been spent on the rise of robos and the ongoing debate of how it will affect the financial service industry.

Jeered, Cheered, Feared
Robo advisory firms have been cheered, jeered, and feared by financial practitioners, perhaps because they were born in academia and given prominence by Silicon Valley. Often these reactions have been without much deep thought about what exactly the technology represents or about the opportunities they present to advisors.

I believe that the financial service industry and its approach to investment management has for too long remained fragmented, lacking quality comparison, and mostly driven by corporate marketing and a salesman mentality. The robo conversation has helped to address a few of these weaknesses by increasing awareness among the general public about key issues ranging from appropriate advisory fees, to the value of having an academic basis for allocation decisions to the ongoing benefit of tax harvesting and rebalancing.

Many of us have been talking with clients about these issues on a one-to-one basis for a while, but with the marketing campaigns rolled out by the robo companies, clients and prospects are now more sensitive to these best practices.

While any good advisors may be already implementing these concepts, robo advisory technology can provide scalability through easy and clean client on-boarding and interface. Robo platforms are technological commodities that should be leveraged to increase advisors’ efficiency, allowing for a refocus of freed-up energy on value-added planning, behavior coaching, or activities that help to uncover an individual’s meaning for his or her investments.

I believe that, unlike most traditional advisor elevator speeches, the goal is not to simply maximize returns for a given level of risk or to minimize risk for a target return but instead to provide an investment experience that increases the probability of the client’s personal goals and objectives of being met.

What They Forget
What some practitioners forget is that the concepts that eventually developed into Modern Portfolio Theory are now being automated by robo advisors—and are simply a means to an end, not an end in and of themselves. The true end-game is successfully guiding investors to invest for a future legacy, pay for their children’s education, and/or experience a comfortable and worry-free retirement! The ultimate goal is not to increase the expected efficiency of an algorithm but to increase the usefulness of the money that investors have worked hard to earn. This only will be accomplished through thoughtful and ongoing communication.

Humans are, and always will be, emotional creatures; it is up to financial practitioners to help clients identify those emotions and harness them in a way that prevents irrational decisions from interfering with financial goals. Robo advisors and other related technology can aid in this endeavor, but they will still need a captain at the helm.

—by Shane Morrow

Shane Morrow, CFP, CIMA, CAIA, is a registered representative of Lincoln Financial Advisors. He also is co-founder and private wealth advisor of IronBridge Wealth Counsel with offices in Austin, Texas, and Pompano Beach, Florida.

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