Balancing financial robo-technology and personal touch

February 19, 2016 by Tom Burmeister

about the author:

Tom Burmeister

Vice president, financial planning

As vice president of financial planning, Tom is an integral contributor to the strategic vision around our financial planning initiatives. Additionally, he is critically involved in all partner interactions, thought leadership contributions, and internal training programs.

Are you the right match for your robo-investments?

Robo-advice has dominated headlines in the financial industry, with some predicting that the online advice market could reach $500 billion by 2020. These headlines are catching the eye of both FINRA and the SEC as well. The biggest question in light of the controversy around the fiduciary standard has been how well a robot can judge an investor’s tolerance for market risk. FINRA and the SEC have recently begun a deeper examination of whether the risk profiles created by these robo-advisors have enough safeguards in place to account for sudden changes to a client’s risk profile or inconsistent answers on questionnaires without some sort of human intervention.

In my opinion, fiduciary advocate Ron Rhoades says it best: “Software has not reached anywhere close to the sophistication to be able to judge the needs to take on risk.” While online tools can be a great start to the overall investment conversation and to introduce prospects and clients to the concept of risk tolerance, the new fiduciary standard arguably requires more human involvement in this crucial step of the financial planning process. Advicent’s new Goal Gauge utilizes one of the most user-friendly approaches to introducing portfolio risk to a potential client and illustrating the impact of risk on the range of expected returns.

You can find the Goal Gauge within Figlo LEADS and Figlo Advisor to help you have client-centric conversations around your clients’ financial lifeline.

Home and away: maintaining plan accuracy through account aggregation.

The advice we give as financial advisors can only be as good as the information we receive from our clients. FINRA has recently ramped up enforcement of its own rule regarding the accuracy of held-away account data being used as part of a financial plan. Surprisingly, the DOL’s proposed fiduciary rule has been relatively silent on this issue, but a true fiduciary cannot provide sound advice without relevant and accurate data about their clients’ financial lives.

Account aggregation has emerged as the solution to many of these hurdles to true comprehensive financial planning. Through aggregation, both the advisor and client can feel confident that the financial plan contains both goals and recommendations based on the most up to date information available. For certain financial information that cannot be added to a financial plan through aggregation, firms may need to implement systems and disclaimers to indicate that an account was entered manually with information provided by the client.

What is your goal for goals-based planning?

The impending fiduciary rules will certainly place pressure on investment-only advice, variable annuities, and certain active or alternative strategies while encouraging more goals-based financial planning conversations. A staggering 80% of advisors said their 2016 New Year’s resolution is to “implement a goals-based approach to investing for their clients.” Jumping forward another decade, advisors predict that goals-based investing will be one of the themes that gains the most momentum by 2025. Clearly the regulatory landscape of the future will necessitate financial conversations centered around what a client truly wants to accomplish with their money. We can all agree on that… so what’s the caveat?

Take it from Michael Kitces: “the reality is that in practice the goals-based approach doesn’t always go as smoothly as hoped.” Traditional goals-based financial planning software, while lauded for its simplicity and ease of use, has also been plagued by some flaws that have gone largely unpublicized. As Kitces points out, it is difficult for clients to know what their goals should be without an idea of how their current savings strategies and cash flows project into the future. Additionally, the perceived simplicity of goals-based planning can come to the detriment of the client when you consider how investments are grown, taxed, and spent throughout the life of a financial plan. A true fiduciary approach mandates a certain level of detail when it comes to making predictions 20-50 years into the future while still making these complex concepts simple enough for clients to understand and adopt in the present.

Advicent’s Figlo Advisor financial planning tool has finally found the sweet spot of financial planning with the ultimate goals-based, client-centric approach powered by a sophisticated cash flow engine under the hood. With Narrator Clients powered by Figlo, a client has on demand access to their financial goals and the underlying cash flows that make their goals possible.

To learn more about Figlo, Narrator, and Advicent's other financial planning technology solutions, click here, or call (855) 885-7526 to speak with an Advicent representative.

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