A white paper finds that wealth advisors are in most cases aware of the challenge of so-called robo advisors - but there is a mixed picture in what they think of how to handle technology in their business.

A survey of 134 independent wealth advisors in the US by the firm CLS Investments, a third-party money manager that also oversees exchange traded funds, finds that the majority of respondents are comfortable with and understand what are called robo advisors, but findings also show mixed thoughts about how much of a threat these models are to existing ways of doing business. The report also says advisors need to embrace tech more broadly than simply considering the "robo challenge".

These technology-driven advisor business, in which certain functions, such as asset allocation and risk profiling, are automated, have become a hot theme in North American and European wealth management in particular. Rising regulatory costs, financial technology advances and changing client habits have put such business models in the limelight.

CLS has issued a white paper as part of its Advisor IQ series, entitled The Coming Automation of Wealth Management and What it Means for Today’s Financial Advisor. 

The paper found that some 95.5 per cent of survey respondents (all ages) believe themselves to be “knowledgeable” to “very knowledgeable” about technology; 60 per cent of respondents would trust robo advisors to help manage and oversee client assets; some 96.7 per cent of them said that humans and robo advisors can “co-exist”, but 78.4 per cent of respondents perceive the robo advisors as a “potential” to “significant” threat to existing businesses.

Respondents also think the media is focusing too much on robo advisors and that phone, email, and face-to-face meetings are still valued by clients and that social media and online platforms are not as important as printed materials. Such findings prompted the following paragraph in the report: “These perceptions contrast markedly with what investors are saying. Investors expect access to their advisor and financial information on any device at any time. According to a study recently released by global consulting firm Cap Gemini, 64 per cent of affluent individuals in North America, including high-net worth (HNW) investors, expect their future wealth management relationship to be digital."

The phenomenon is controversial and industry practitioners debate the limits of how far the idiosyncratic nature of clients’ needs can be automated without detracting from the bespoke nature that wealth management often seeks to present. To see a recent article from Evercore on such issues, for example, and a survey about the issue, click here and here.

In many debates heard by this publication, the point is often made that there is no simple binary choice between "human" and "robo" but an issue of finding the suitable balance based on how complex a client's needs are and comfort with technology.

“There is a risk that advisors will simply say “my clients don’t want a robo. They do business with me because of the relationship we have”. Robos aren’t going to replace the human advisor; however, technology will improve the client experience. Financial advisors need to embrace technology to improve the client experience,” Todd Clarke, CEO of CLS Investments, told Family Wealth Report in a phone call about the findings of his firm’s report.

Asked to what extent have operators of such "robo" models dealt with issues such as liability in the event of client lawsuits/complaints about things going wrong, Clarke said that the entire “robo” wave is young and there is no answer yet to the liability question.  
How much clarity is there of data about the pricing models and fees of robo advisors so that clients can evaluate value for money? “Again, the whole robo wave is so young that it is difficult to answer this question. Advisors that deliver value by providing not only asset management, but also do estate, insurance, and financial planning should be able to show value to clients who need those services. To use an analogy, Turbo Tax has appealed to a certain type of person, but Turbo Tax has not eliminated CPA’s. Busy, sophisticated clients still see value in doing business with a CPA over Turbo Tax.  I think the same will be true with robos and human advisors, but advisors need to deliver value well beyond asset management,” he said, referring to the tax preparation software package known as Turbo Tax. 

Understanding
Among other details in the CLS white paper, it found that 81.8 per cent of respondents believe they have a “clear” understanding of what a robo advisor is; 48.1 per cent of respondents categorized robos as “a low-cost, technology based financial advisor for the masses”, and the majority of respondents (79.5 per cent) said the robos would have either a positive or neutral impact to their practices.

The most important conclusion from the report, its authors said, is that advisors need to take heed and start to embrace technology more broadly, not just in the robo category, but also in front and back offices to drive necessary efficiencies in a world of compliance, security, and pricing pressures.

“Financial planning is at the crossroads of a technological shift, amongst both financial planners themselves and the clients they serve,” Todd Clarke, CEO of CLS Investments, said. “In the years ahead, the impact of developments like robo advisors and other advancements in client facing technologies will continue to push traditional advisors to find new ways to manage wealth, leading to a whole new breed of advisor,” Clarke said.

Historically, changes in consumer technology have had a slow industry adoption rate due to the highly regulated nature of financial services. There have been many examples of resistance to these consumer technology innovations, such as email communication, websites, social media, and mobile devices. Due to a lack of understanding of how to manage these technologies based on inertia and compliance concerns, many firms initially prohibited these new technologies, the white paper said.