In my 31 years as an advisor, I have witnessed some pretty amazing changes. But one thing that hasn’t changed is the constant din from pundits about how every new technological advance is going to be the death of advisors. With so much talk about the new robo advisors, who’s to know what’s really going to happen? But from where I sit, there are a handful of truths I feel certain about.
The ongoing hype about robo-advisors being a game-changer is the same as what was said about discount brokers when they first emerged in the 1980s, or when rebalancing mutual funds became available in the 1990s, or when ETFs were created in the 2000s. In other words, robo-advisors are just another tool available to Canadian investors.
Automated investing has been around for decades. It first appeared in the mid-1990s when banks and mutual fund companies started using computers to automatically rebalance clients’ investments. Everyone said they would outperform and eventually replace traditional investment advisors. (They didn’t.)
As for claims that robo-advisors will be a big threat to discount brokers and bank branch channels, most of these investors are already tech-savvy, comfortable making decisions on their own and require minimal personal contact with investment professionals. The banks, recognizing this threat, are quickly creating their own robo services.
Initially, robo-advisors were created as a simple, stand-alone technology platform with no 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, it’s very difficult to grow. Robos have started adding a human component to their business model, acknowledging that investors (surprise!) want more than just a computer screen. This second generation of robo-advisors is now called digital advisors.
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 between 18 and 54 years of age). And I believe the robos have the potential to attract billions of dollars from Canadian investors.
So where does that leave us? In Canada, most investors choose to work with an advisor. Why? Because most Canadians find they lack the financial knowledge or the time required to research all of their available options. Clients rely on professional advisors to help carry that part of the investing and planning workload. Advisors shouldn’t think of robo-advisors as a threat, but rather as yet another opportunity to think bigger. Here’s how:
1. Do your homework.
Be prepared to answer client questions about robo-advisors. After all, giving advice is a knowledge game. Knowing about robo-advisors will help cement your reputation as a knowledgeable professional and will help build the relationship a 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, if your client wants to try one, you’re ready to help with positive, unbiased advice. When you’re open to new ideas from clients, they’ll leave feeling that you truly are looking out for their interests.
3. Harness the momentum 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 roboadvisor. Soon many firms will have access to robo-advisor platforms. If you have access, check them out!
4. Build and strengthen your client relationships.
After all, a relationship with an advisor is what Canadians really want and what robo services will struggle to develop. Over the decades, I’ve come to understand that Canadian investors prefer to work with a professional advisor. They want a relationship with someone they trust, someone they can comfortably speak to, and someone who has their and their family’s best interests at heart – all things a robot will have difficulty providing.
George Christison, STI, CIM, FMA, FCSI, is a retirement planner with IFM Planning Services. A three-decade industry veteran, Christison also founded the financial resources website InvestingForMe.