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Opinion: Another two cents on robo-advisors

February 2, 2016 by InvestingForMe

In my 31 years working as an advisor, I have witnessed some pretty amazing changes in the investment landscape. But one thing that hasn’t changed is the constant din from investment and media pundits about how every new technological advance is going to be the death of advisors and investing, as we know it. (Not!)

Top 5 “facts”

With so much talk about the new robo-advisors, who’s to know what’s really going to happen with them and us. But from where I sit, there are a handful of “truths” I feel certain about:

  1. It’s not different this time. The ongoing hype about the new robo-advisors being a game changer for advisors and investors is the same thing that was said about discount brokers when they were first created in the 1980s, or when re-balancing mutual funds were created in the 1990s, or when ETFs were created in the 2000s. In other words, robo-advisors are no more than just another tool available to Canadian investors.
  2. Robo-advisors are not a new service. Automated investing has been around for decades. It first appeared in the mid-1990s at banks and mutual fund companies using computers to automatically re-balance clients’ investments and, just as with today’s robos, everyone said they would outperform and eventually replace traditional investment advisors. (And they didn’t.)
  3. Robo-advisors will be a big threat, however, to companies that service their investing clients through discount brokers and bank branch channels. Most of these investors are already tech savvy, comfortable making decisions on their own and already require minimal personal contact with investment professionals (i.e., they have a small, if any, relationship with a professional advisor). As a result, the banks, recognizing this threat, are quickly creating their own robo-services.
  4. Robo-advisors already recognize their own shortcomings, and so should advisors. Initially, robo-advisors were created as a simple, stand-alone technology platform with no personal contact or human content. But robos have quickly realized that the market for a purely technology-driven investment platform is very small, and without a dedicated sales force, very, very difficult to grow. Robos have now begun, therefore, to add a human, advice-giving component to their business model, acknowledging that investors want more than just a computer screen. (Surprise!) This second generation of robo-advisors is now labeled digital advisors.
  5. Robo/digital advisors will be successful. Just like the discount brokers and ETFs before them, the robo-advisor platform will be successful and they will have an important place within the investment industry (especially with those investors 18 - 54 years of age). And I believe the robos have the potential to attract billions of dollars from Canadian investors (similar to the growth experienced by the ETF industry).

Advisors and investors: reality check

So where does that leave us? In Canada the vast majority of investors choose to work with an advisor. Fact: Among Canadian retail investors, 83% work with a financial advisor and they hold 81% of their savings and investments in accounts with advisors.

Why? Because most Canadians find they lack the financial knowledge or the time required to research all of their available options. Clients rely upon and trust professional advisors to help carry that part of the investing and planning workload that they themselves cannot do. (And I don’t see this fact of investment life changing any time soon!)

So, what should regular old human advisors do on the basis of this reality?

Think bigger

Advisors should not think of robo-advisors as a threat, but rather as yet another opportunity to think bigger.

Here’s how:

  1. Do your homework and be prepared to answer client questions about robo-advisors. After all, giving advice is a knowledge game. Knowing about robo-advisors will help to cement your reputation as a knowledgeable professional and it will help to build that trusting relationship that the majority of Canadians desire.
  2. Approach robo-advisors with a positive attitude. Just as with any service or product, there are some not-so-good ones and some really great ones. Learn who they are. That way, when your client wants to try one, you’re ready to help with positive, unbiased advice. When you’re open to new ideas from clients, your clients will appreciate it and trust you more. They’ll go away feeling that you truly are looking out for their interests.
  3. Harness the momentum behind robo-advisors to build your client book. Just as many advisors have developed a business model based on the use of ETFs, you might be able to build a business around the services of a robo-advisor. Soon many bank and non-bank owned firms will have access to robo-advisor platforms. So, if you have access, check them out!
  4. Build and strengthen your client relationships. After all, a relationship with an advisor is really what the majority of Canadians want and what robo-services will struggle to develop. So, stay focused on what’s really important – building strong relationships.

Bottom line: It’s all about connection

Over the decades the one thing that I’ve come to understand about Canadian investors is their preference for working with a professional advisor. They want a relationship with someone they can trust, someone they can comfortably speak to, and someone that has their and their family’s best interests at heart – all things that a robot will have difficulty providing.


This article was originally published in the January 2016 issue of Wealth Professional Magazine.



This article follows our previous robo-advisor article -  The new robo-advisors: same shizazz, different shirt?





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