Since 2010, financial advisors have been sounding the alarm over the rise of robo-advisors. Although the assets held by robo-advisor firms is still a fraction of the trillions of dollars held by traditional asset management firms, the direction of the market is firmly moving towards firms utilizing financial technology, or fintech, innovations. An increasing number of established advisory firms are acquiring fintech firms, investing in them, or partnering with them, ostensibly to enable their financial advisors to compete with the onslaught of digital advice.
With billions of dollars in venture capital flowing into fintech each year, it is quickly getting to the point where financial advisors must choose whether to fight the onslaught or learn to adopt fintech solutions as a way to better serve their clients. Consider these four reasons why financial advisors should take advantage of fintech technologies.
Clients Leading the Charge
The two leading robo-advisor firms, Betterment and Wealthfront, started as direct-to-consumer investment platforms in 2008. Through the end of 2018, Betterment has more than $16 billion in assets under management, and Wealthfront has $11 billion. Both companies tend to serve younger investors, primarily in the millennial age group, who are attracted by the self-serve digital platforms but they are beginning to develop a sizable following of older adults, including baby boomers.
Although financial advisors managing the assets of ultra-high net worth individuals aren’t expected to feel the immediate impact of robo-advisors, they need to prepare for the coming transfer of more than $30 trillion of wealth to the millennials in the next 20 years. If they expect to get any part of it, they need to be on the leading edge of fintech technology. Betterment, along with Charles Schwab, now offer digital advisor platforms that mimic the direct-to-consumer platform for automating advice, but they include a financial advisor as an intermediary in the process.
If You Can’t Beat Them, Join Them
Driven by client expectations of quick, easy, and transparent, the pace of fintech technology is accelerating, and it will leave financial advisors who don’t adopt it languishing in obsolescence. Advisors who adopt automated, digital advice stand to capitalize on the market trend while adding significant value with the human factor. Robo-advice will never replace the human interaction required for more complex financial planning. Financial advisors who offer an omni-channel solution, in which clients can opt for self-directed, advisor-assisted and advisor-driven engagement, all on demand, stand the best chance of capturing the assets of millennials and anyone else who prefers to have options.
Independent Advisors Need Scale
Aside from providing digital advice, fintech companies in the investment arena are delivering back office and client-facing solutions that streamlines many of the processes used in onboarding clients, managing their portfolios, offering client portals and managing compliance. Financial advisors working with many of the larger asset management firms that are investing in or acquiring fintech companies will see their platforms incorporating many of these fintech solutions. However, the fastest growing segment of the advisory industry, independent financial advisors, must be able to achieve the technological scale of the big firms if they are going to survive. Fintech can have the effect of leveling the playing field between the big firms and the smaller advisory firms. Several of the largest custodian firms, such as Schwab and Pershing LLC., are developing or investing in proprietary fintech solutions, including a robo-advisor platform for financial advisors.
Harnessing the Power of Big Data
One of the biggest contributions of fintech has been its ability to harness, analyze and compartmentalize massive volumes of data. Financial advisors can leverage big data for more efficient and effective prospecting, enabling them to more precisely target markets and better utilize information to engage their clients and prospects. On the investment side, big data analytics provides advisors with the ability to better forecast market trends and the impact of macro events on asset prices for managing investment portfolios. In the near future investment decisions will be made in milliseconds based on quantitative analysis giving the edge to financial advisors utilizing the technology. When ultra-high net worth investors learn of this technology, they will most likely seek it out.
Dan Sondhelm is CEO of Sondhelm Partners, a firm that helps asset managers, mutual funds, ETFs, wealth managers and fintech companies grow through marketing, public relations and sales programs. Click to read Dan’s latest Insight articles and to schedule a complimentary consultation.