Tags: Vanguard | Robo | Adviser | Assets

The Robo Threat on Adviser's Assets Intensifies

Image: The Robo Threat on Adviser's Assets Intensifies

By    |   Friday, 18 Mar 2016 06:10 AM


Vanguard’s Robo-advisor has quickly taken the lead by devouring over $16 billion in new assets, plus another $10 billion from their own legacy advice offering.

As the giant continues to gather market share, more Robos will also enter and further compress pricing in the entire industry.  However, their customers will demand more and will be forced to offer more services because, after all, they still have to compete with humans.  (Robo-advisors are a class of financial adviser that provides portfolio management online with minimal human intervention.)

Joe Duran’s column in Investment News provides great insight advice for advisers to prepare and better position themselves for this future chasm.

It is important to stay competitive in this environment without just reducing fees, and to remember that many people are willing to pay higher prices for what they perceive is a good value. 

Over 15 years ago, while I was the Florida Director of Wealth Management for a national accounting firm, I recognized the landscape of the financial services industry was beginning to change.  We began to see price compression within the financial planning and advice arena when many brokerage firms began offering a “complimentary” financial plan to existing clients (some were used to cross sell other products and services) or plans were offered at an extremely low cost to attract new clients.


In my five-year tenure at this accounting firm, there were four National Directors.  The last in my term,  having come from the financial services arm of a credit card issuer, who had envisioned his legacy to create what I called the streamlined menu of financial advice; serve one client expediently and move to the next, without providing comprehensive or in depth planning.  While a cost effective and large margin delivery system for the provider, it was not the best method or platform to deliver comprehensive financial planning advice.  This was also very difficult for the financial adviser with a holistic approach to subscribe to if they truly wanted to provide custom, quality advice for each client. 

I quickly recognized there would ultimately be two classes: A very lite financial planning (something akin to Robo today), and a more comprehensive planning and service model.  “Basic planning/pure investment advice” would quickly become a difficult place for advisers to be adequately paid for their time and as such may become extinct.  The industry is rapidly changing as Joe forewarned in his articles, so for those whose passion and priorities lie in making a meaningful difference in clients lives by providing comprehensive sophisticated planning, I propose advisers arm themselves in this “new normal” by investing in their skillset.

Add Value. Most Robos don’t have the human capability to gather and analyze a complex financial situation.  Add value by having a deeper knowledge of all the financial components that impact a client’s future financial goals and lifestyle.  For example, consider sharpening your skills in complex tax planning and estate planning by reading, taking courses, and learning from the experts. Understand how to read a tax return. It can help you to have a deeper understanding of a client’s financial situation, and potentially have the ability to find mistakes (they happen). If you don’t already have the CFP® certification, consider obtaining it.  In addition, increase your value by perfecting your ability to think “outside the box,” and to provide solutions above and beyond basic planning and portfolio allocation.

Create the stickiness factor by making yourself indispensable. “Know where all the bodies are buried,” so to speak, by having an intimate knowledge of the client’s entire familial lineage, financial history, dispositive intentions, as well as their aspirations and dreams for future generations within their legacy plan.  When you are their key adviser, working with their tax and estate advisers by coordinating and integrating their overall plan, helps you become indispensable.  By integrating as many of your services and touch points as possible, while concurrently making their life easier, clients perceive this as a great value and therefore will be less likely to attrite.  This is the “stickiness” factor.   For most sophisticated clients, if it is time consuming, and cumbersome to reeducate another adviser, with no guarantee they will receive better service and attention than what they have now, they will not leave to save a few dollars elsewhere.

Refine your Client Base - Look to attract sophisticated, complex clients.  The reality is that most of the clients who have complicated situations, know a Robo adviser can’t serve their overall planning needs.  The Robo isn’t going to catch a duplicated ordinary income error from a Roth conversion on their tax return.  While you may not be a CPA or licensed to give tax advice, you can certainly be educated to identify errors, provide solutions, and pose relevant questions to their accountant or other advisers.

The Robos will continue to take market share, but Advisers have the ability to evolve, specialize and provide what they can’t. There is a reason people pay exponentially more to stay at a Ritz-Carlton or Four Seasons. People will pay for perceived value.


Kathleen A. Grace, CFP®, CIMA® is a Managing Director at United Capital and Amazon Best-Selling Author of Prince Not So Charming, a financial planning novel. To read more of her blogs, CLICK HERE NOW.

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Vanguard's Robo has quickly taken the lead devouring over $16 billion in new assets, plus another $10 billion from their own legacy advice offering.
Vanguard, Robo, Adviser, Assets
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2016-10-18
Friday, 18 Mar 2016 06:10 AM
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