How to Confront HNW Prospects Who Choose Robos

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My coaching clients tell me they are losing wealthy clients to robo-advisors. They want advice on how to better articulate their value proposition.

Betterment just announced a new algorithmic service that minimizes taxes. The service, which it calls a “tax-coordinated portfolio,” automatically and continuously determines which assets should be placed in taxable, tax-deferred and tax-exempt accounts to maximize tax efficiency. It monitors these accounts and adjusts for withdrawals and other transactions.

This adds to the capabilities of some robo-advisors to automatically rebalance portfolios and engage in tax-loss harvesting.

No one believes the range of services offered by robo-advisors has peaked. We will see automation of many aspects of financial planning (maybe even including estate planning) and insurance evaluation and selection. Sooner or later, a robo-advisor will offer a portfolio consistent with the Fama-French five-factor model.

Where does that leave full-service advisors – especially so-called evidence-based advisors?

Waiting in the wings

How much of a threat robo-advisors pose to full-service advisors is up for debate.

I interviewed Uday Singh, a partner in the financial institutions practice of A.T. Kearney, a leading global management consulting firm with offices in more than 40 countries. Here’s a summary of his views:

  1. Investors will expect to have the same simple, elegant interface now available from robo-advisors. This will require a meaningful investment in technology to meet these expectations. Much of this cost will be borne by the large-platform providers, like Charles Schwab, Fidelity and T.D. Ameritrade.

A Coach and Speaker Who Will Increase Your Conversion Rate

My evidence-based persuasion strategies have significantly increased conversion rates for my coaching clients.

I use videoconferencing, which is very cost-effective. I also give on-site presentations and am available to speak at conferences and internal meetings.

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  1. Mass-affluent investors who use advisors lack knowledge about the fees they are paying. Almost 60% of investors surveyed didn’t know how much they pay their advisors. Singh believes the “intergenerational” advertisements now running extensively will cause investors to focus more on fees.
  1. About 72% of investors surveyed who knew how they were charged for advice (60% of all investors) indicated a willingness to switch investment advisors for a lower fee. This willingness was not limited to younger or lower net-worth investors. About 61% of these investors with $1 million or more in assets were willing to make the switch.
  1. Singh believes there will be increased fee pressure on traditional advisors due to lower fees and transparency of robo-advisors, resulting in lower profits.
  1. He predicts many traditional firms focused on the middle and lower markets will exit that business and there will be more mergers as firms seek to achieve economies of scale.

Michael Kitces observed that growth rates for robo-advisors have fallen significantly. He believes the real impact of the robo-advisor movement will not be in the shift from traditional advisors to robo-advisors, but it will be a “catalyst for the industry to reinvest into the future of financial advisor technology.”

Here are some recent experiences – and the concerns they’ve raised – that I’ve had with different levels of investors.