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Wriiten by: Leah Golob | Investment Executive Canada
As automated portfolio-management systems, they can enhance your business
Some financial advisor regard so-called robo-advisors as a threat to their livelihood. But robo-advisors can represent an opportunity for you to improve the way you serve your clients, according to Richard Heft, executive director of Ext. Marketing Inc. in Toronto.
The term "robo" may sound intimidating, because it brings to mind images of machines replacing human advisors. But the term is misleading, according to Heft.
"Robo-advisors are really portfolio management systems," Heft says. "And portfolio managers have been using various types of technology for years now. They are becoming a growing part of the industry."
Here are three ways robo-advisors can help you:
1. Improved time management
You might use robo-advisors to manage the accounts of clients who need less hands-on financial planning and advice.
For example, millennials, who are in the accumulation stage of their lives, may require less personal advice than older, more affluent clients, Heft says. And millennials often are more comfortable working with technology and the web than older clients.
Using robo-advisors to manage some clients' portfolios can free you up to spend more time with clients who have accumulated larger assets and may need more personal advice on issues such as retirement planning and estate planning.
Millennials represent the future of the industry, so you still should work with them in developing a financial plan. Robo-advisors give you the option of providing more or less active management for these clients, depending on their individual needs.
2. Client education
Take an open and transparent approach when explaining the benefits of robo-advisors in conjunction with your practice, Heft advises. Clients will see you as being more trustworthy than someone who might dismiss robo-advisors altogether.
The use of robo-advisors can be regarded as a diversification strategy, Heft says. You might even consider hosting presentations in which you explain various types of asset classes and investment styles in the context of robo-advisors.
"In the post-CRM2 era," Heft says, "any discussion is a good discussion."
3. Demonstrating your value
Clients will always need the soft skills of a human advisor.
"Advisors have been proven to prevent investors from making emotional investment decisions in times of market volatility," Heft says. "A person who relies solely on technology may make more knee-jerk decisions that could affect their long-term ability to meet their savings needs."
For example, the Value of Advice Report by the Investment Funds Institute of Canada indicates that households that use an advisor are 1.5 times more likely to maintain a long-term investment strategy than those that do not have an advisor.