The time to implement a hybrid advice model is now

November 1, 2017 by Katelyn Rattray

An advisor utilizes a hybrid model to demonstrate value to her client.

about the author:

Katelyn Rattray

Senior content marketing specialist

With a background in content marketing, public relations, and social media management in a variety of industries, Katelyn strives to deliver high-quality educational content to advisors in the financial services industry and empower them with tools to boost their marketing efforts through content marketing and technology.

It is no secret that the robo-advisor market has grown since its inception. Consumer expectations have been in a state of flux for years as they began to demand a more client-centric, collaborative experience when it comes to financial advice. According to EY, more than half of all clients expect digital will be the primary channel within two to three years for advice, education, and service. Digital has permeated nearly every other facet of consumerism, and financial services is no different. Enter robo-advisors, stage right.

In my last article, I highlighted the biggest trends in robo-advice to watch and their effects on the financial services landscape. One of those trends was the hybrid advice model, which is becoming more and more prevalent in our industry.

Is hybrid advice delivery a good idea or “nonsense?”

In order to compete with the new robo-advisor competition, financial services organizations and advisors have implemented digital tools, such as client portals, account aggregation, and online assessments, to supplement their own financial planning process.

On the other side, the industry has seen its fair share of robo-advisors adding a human element. In December 2016, Schwab announced it would add human advisors to its automated investing service for clients with $25,000 or more in assets. Shortly thereafter in January 2017, Betterment, one of the earliest and largest robo-advisors, launched services that included access to advice from human advisors, and others — including Vanguard, Personal Capitol, and Rebalance — are also offering this mix of digital and human services.

In a recent article, LendingRobot CEO Emmanuel Marot claims that this hybrid advice model is “nonsense.” He claims that human advisors are simply not trustworthy and that this automated advice technology has become sophisticated to the point where it can make quantitative decisions (better, faster, and cheaper) that a junior employee can make. According to Marot, “Big parts of the finance industry are built on convincing clients they need sophisticated services because it’s easier to sell an expensive service if it looks complicated. Neither complexity nor human whims have proven to bring any value.”

Many firms, however, have published research recently stating the opposite.

What does the consumer really want?

If you look at the numbers, Marot is in the minority and, considering he is the CEO of a fully automated investment tool, he will always defend the benefits of a purely digital experience. While there may be declining client trust in financial institutions, Accenture found that 68 percent of emerging wealthy and high-net-worth investors already prefer hybrid models to traditional models.

The research completed by Accenture found that 51 percent see a human advisor as the most reliable option for new investment ideas, and 57 percent of investors felt human advisors (virtual included) provided the best customized advice.

Financial Planning Association and Investopedia also found that people prefer “a ‘bionic’ financial advisor who offers a low-cost, automated investing platform paired with patient, personal advice.”

If you have not already begun down the path of a balanced mix of services, now is the time. It is becoming clearer in our industry that clients expect the ability to choose how much digital and human access they want. If you cannot provide the balance they desire, they will simply move on to the next provider.

Additional findings in the Accenture study state that 74 percent of investors surveyed said they would consider a non-traditional competitor because of a broader product offering, while 73 percent liked the lower cost they might represent. If that information is not compelling enough to move toward a hybrid advice model, I do not know what is.

To learn more about the importance of a hybrid advice model and its effects on the future of financial services, download our whitepaper here.