Kyle provides revenue and sales analysis for all Advicent go-to-market teams. These analytics optimize Advicent pipeline forecasting, marketing strategies, and leveraged media channels to improve efficiency of sales operations. Kyle is interested in combining his three passions: tech, data analytics, and marketing, to drive success.
Robo-advising drew a lot of media attention over the last year or two. The industry garnered large amounts of attention as people claimed that financial advisors were the next profession to be automated and replaced. As the dust has settled on the role of robo-advice, the use of the term “advice” is often a misnomer.
In its current iteration, robo-advice is doing anything but providing advice. Robo-advice actually provides automated investment account management. Automated investment account management has been used to attract the least profitable clients — Millennials — and as an auxiliary service to enable advisors of wealthier clients.
Millennials and the prominence of robo-advice
It is no secret that one of the main goals in business is to turn a profit. Providing quality, profitable advice to Millennials is a constant struggle for advisors because of a lack of investable assets. If you believe in the great generational wealth transfer, it is risky to be a loss leader in providing Millennials advice until they receive their inheritance. This is a corner of the market in which robo-advice has excelled.
Millennials have identified a cheap and easy way to invest with a basic suite of automated services. This follows basic market saturation guidelines: if a market is under-saturated due to profitability concerns, a new invention that can serve the market profitably will win out. As an advisor, the long-term risk is that Millennials will remain loyal to robo-advisors as they gain more investable assets — and as robo-advice adds more features and functionality.
In the future, some of those features very well may be automated financial advice. It gets difficult, however, to imagine a computer running such a complex algorithm that will properly allocate investments and provide compliant investment advice. How else is robo-advice being used?
Robo-advice as a value-add
Robo-advice is also used by advisors as a value-add to their clients. Advisors are able to use automated account balancing and tax-loss harvesting to cut costs while providing clients with better, more valuable service than what robo-advice provides.
Using a service to manage investment accounts can free up advisors' time to do other things. However, many advisors I have talked to do not believe in computers to rebalance accounts. Look at the current environment: many of your clients’ portfolios are becoming unbalanced, with equities gaining a majority of the account share due to large gains in the stock market. With stocks near record highs, it might be appealing to hold off on rebalancing an account and continue letting the profits run with the bull market.
In conclusion, the initial version of robo-advice has been delivered and its value to the market has been defined. In the beginning, the use of the term “advice” in robo-advice provided a scare. In the current iteration, robo-advice does provide market value in a couple key areas, as a low cost investment management service and an advisor enabler. The future iterations of robo-advice will be important to watch, as the industry will continue to add more and more features to robo-advice.
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