Robo-advice has become the elephant in the room for the financial sector – but the bigger it gets, the harder it will be for advisors to ignore
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The robotic revolution is marching on, and advisors won’t be able to deny it much longer. Significant names in the financial sector continue to turn to new technologies to appeal to a wider array of clients.
Take, for example, the Royal Bank of Canada, which partnered with BlackRock’s FutureAdvisor, a platform that uses algorithms to help guide investment decisions. Via its investor gateway, RBC will become the custodian of client assets and take care of tax documents, statements, trade confirmations and so on. At the same time, FutureAdvisor will offer a digital advice service based on a holistic examination of the client’s portfolio, including guidance on when is the right time to make various investment decisions. RBC said the partnership was prompted by its advisors, who were eager for more tech-savvy tools that might help them reach a larger pool of investors.
Many believe that robo-advice platforms, with their simple interfaces, frequent calls to action and use of big data, actually offer clients a better and more tailored experience. Indeed, a report from Capgemini estimates that the current $14 to $16 billion in assets managed by robo-advisors will climb to $1 to $2 trillion within the next five years.
Mallory Greene, marketing manager at Wealthsimple, believes now is the time for advisors to sit up and take notice of the technology, because failing to do so may be a huge risk.
“I think it’s fair to say that a lot of people will have interactions with robo-advisors, especially when CRM2 regulations reveal how much people are paying their financial advisors,” she says. “Millennials are currently the biggest generation in the Canadian workforce, and they’re figuring out where to invest their hard-earned money. We rely heavily on technology, and we can basically control our entire life
through a phone, including our investments. I think that firms that don’t adopt new technologies to simplify investing or offer reasonable pricing will definitely be left behind.”
However, not everyone is on board.
A recent study from Allianz reveals that non-millennial clients – such as Baby Boomers and Gen Xers – aren’t so keen on getting advice from robotic platforms. Nearly seven out of 10 said they “don’t really trust online advice” and prefer a personal connection instead.
Bill McElroy, senior financial advisor with Manulife Securities Inc., thinks that as long as older generations make up a large portion of the investing public, there’s still a place for the human advisor.
“I can see where this service may appeal to the millennial crowd,” he says. “For them, this may be the answer. However, I deal primarily with successful Baby Boomers who grew up interacting with people, not computers. I do not think that many will go for this type of investing. Investing is very emotional, and I do not think a computer will be able to react to or read a person’s feelings – in our lifetime anyway.”
Many in the industry appear to be embracing new technologies with open arms, however. According to a survey of 800 attendees at a True Potential conference, 80% of financial planners deemed roboadvice an opportunity for their business rather than a problem, predicting that
clients will opt for a hybrid model rather than turning their backs on human advisors.
Melissa Harrell, an associate advisor at Howe Harrell & Associates, agrees. “Robo-advisors are a tool for investors, not a complete replacement for receiving full financial advice,” she says. “If there are investors out there who are financially savvy enough to use these tools to their advantage, then this would be a good fit. However, it takes time and commitment to properly manage a portfolio, create and maintain financial plans, and stay up-to-date on financial matters. Studies in Canada show that clients save significantly more money,
and have much more confidence in their financial plan, when a human advisor is engaged.”
Given that, many think robo-advisors will need to up their game considerably before they present a real threat. “In order for robo-advisors to be a threat to our occupation, they would have to be able to consider a client’s full financial situation – including tax implications – and build trust,” Harrell says. “Our clients appreciate that we treat their money like our money. They can sit down with us to have a conversation face-to-face, looking us in the eyes, confirming they will have enough money to send their kids to school or retire on time. When an algorithm is created that can replace that kind of human interaction, then I think we are looking at a threat to our roles.”
Take, for example, the Royal Bank of Canada, which partnered with BlackRock’s FutureAdvisor, a platform that uses algorithms to help guide investment decisions. Via its investor gateway, RBC will become the custodian of client assets and take care of tax documents, statements, trade confirmations and so on. At the same time, FutureAdvisor will offer a digital advice service based on a holistic examination of the client’s portfolio, including guidance on when is the right time to make various investment decisions. RBC said the partnership was prompted by its advisors, who were eager for more tech-savvy tools that might help them reach a larger pool of investors.
Many believe that robo-advice platforms, with their simple interfaces, frequent calls to action and use of big data, actually offer clients a better and more tailored experience. Indeed, a report from Capgemini estimates that the current $14 to $16 billion in assets managed by robo-advisors will climb to $1 to $2 trillion within the next five years.
Mallory Greene, marketing manager at Wealthsimple, believes now is the time for advisors to sit up and take notice of the technology, because failing to do so may be a huge risk.
“I think it’s fair to say that a lot of people will have interactions with robo-advisors, especially when CRM2 regulations reveal how much people are paying their financial advisors,” she says. “Millennials are currently the biggest generation in the Canadian workforce, and they’re figuring out where to invest their hard-earned money. We rely heavily on technology, and we can basically control our entire life
through a phone, including our investments. I think that firms that don’t adopt new technologies to simplify investing or offer reasonable pricing will definitely be left behind.”
However, not everyone is on board.
A recent study from Allianz reveals that non-millennial clients – such as Baby Boomers and Gen Xers – aren’t so keen on getting advice from robotic platforms. Nearly seven out of 10 said they “don’t really trust online advice” and prefer a personal connection instead.
Bill McElroy, senior financial advisor with Manulife Securities Inc., thinks that as long as older generations make up a large portion of the investing public, there’s still a place for the human advisor.
“I can see where this service may appeal to the millennial crowd,” he says. “For them, this may be the answer. However, I deal primarily with successful Baby Boomers who grew up interacting with people, not computers. I do not think that many will go for this type of investing. Investing is very emotional, and I do not think a computer will be able to react to or read a person’s feelings – in our lifetime anyway.”
Many in the industry appear to be embracing new technologies with open arms, however. According to a survey of 800 attendees at a True Potential conference, 80% of financial planners deemed roboadvice an opportunity for their business rather than a problem, predicting that
clients will opt for a hybrid model rather than turning their backs on human advisors.
Melissa Harrell, an associate advisor at Howe Harrell & Associates, agrees. “Robo-advisors are a tool for investors, not a complete replacement for receiving full financial advice,” she says. “If there are investors out there who are financially savvy enough to use these tools to their advantage, then this would be a good fit. However, it takes time and commitment to properly manage a portfolio, create and maintain financial plans, and stay up-to-date on financial matters. Studies in Canada show that clients save significantly more money,
and have much more confidence in their financial plan, when a human advisor is engaged.”
Given that, many think robo-advisors will need to up their game considerably before they present a real threat. “In order for robo-advisors to be a threat to our occupation, they would have to be able to consider a client’s full financial situation – including tax implications – and build trust,” Harrell says. “Our clients appreciate that we treat their money like our money. They can sit down with us to have a conversation face-to-face, looking us in the eyes, confirming they will have enough money to send their kids to school or retire on time. When an algorithm is created that can replace that kind of human interaction, then I think we are looking at a threat to our roles.”
