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Robo-advice: Is your wealth management firm ready?

Kendra Thompson explores the growth of robo-advice and opportunities for wealth managers.

Kendra Thompson

Lead, Wealth Management Services, North America

Robo-advice is quickly gaining traction in the wealth management industry. Kendra Thompson takes a closer look at what investors can expect from the technology and how traditional wealth management firms can make the most of this emerging technology.

We hear the term robo-advice more and more, but what does it mean?
The term “robo-advice” is really a catch-all for any kind of automated wealth management service that uses algorithms and other digital techniques to build and manage portfolios without the involvement of a human advisor. That’s not to say, however, that human advisors can’t leverage robo-advice capabilities as part of their toolkits.

How sophisticated is today’s robo-advice technology?
The technology is advancing rapidly for sure, but it’s still fairly basic at this point in time. Right now, robo-advice is most useful for streamlining the account opening process and assessing risk tolerance. It also does a pretty good job of gathering client information, developing basic financial plans, conducting regular performance reviews and providing status alerts.

It really struggles with more complex tasks, like creating custom client solutions, and tasks that require judgment, like explaining confusing topics, probing for additional information, persuading clients to act and keeping them calm when the market gets rough.

Will robo-advice make human advisors irrelevant?
We have a long way to go before that happens—if it ever does. There are still many aspects of wealth management that robo-advice is not equipped to handle. Equally important, the majority of investors still see value in the personal connection of a human advisor. Our research found that 81 percent of clients believe that face-to-face interaction is important, and 77 percent trust their financial advisors and want to work with them to manage wealth.

How should traditional wealth management firms approach robo-advice?
Your approach to robo-advice will depend on a few factors, including your firm’s size, your target market, your market position, and more. You might want to build your own robo-advice service internally from the ground up, buy an independent robo-advice company, or partner with an established player. From there, you have to consider how you will integrate robo-advice with your human advisor services and introduce them to market.

Will you launch a robo-advice service for digital-centric millennials under a new brand name, or will robo-advice be made available to all clients alongside your traditional advisory services? Do you view robo-advice as a standalone service or a tool to support your existing advisor platform? The options are endless.

What will determine the success or failure of a robo-advice initiative?
When it comes to robo-advice, you can vastly improve your chance of success if you focus on three things. First, get the offering right. Put yourself in your investors’ shoes and think about the experience you’re delivering. Second, nail your distribution strategy. If you’re targeting a new audience, you might need to revisit your current approach. Third, get your advisor force on board. You want your human advisors and robo-advice capabilities to be working together seamlessly as a team, not competing for attention.

There’s no right or wrong way to do this. It’s a matter of determining what makes the most sense for your firm.