The general consensus is that fintech has laid down the gauntlet to advisors, who now must up the ante in terms of proving value.
Robo advice, the rise of low-cost ETFs and the heightened demand for transparency have all empowered investors to expect more for their money when dealing with financial planners.
Tony Stich, chief operating officer at Advicent, the market leader behind the NaviPlan software, said advisors have to go one step farther and understand when an investor reaches his or her robo “breaking point”.
Stich explained that, for example, if an investor with $25,000 of investable assets compares fees – let’s say 40 basis points for the robo and 80 for an advisor – they are likely to, initially at least, opt for the cheaper option.
But he said: “At what point does your tolerance change? Now you have $100,000 of investable assets – are you still going to go with the robo or with an advisor where you think there is a better diversification strategy that fits you?
“We don’t know where that breaking point is, or what that magic number is – whether it’s $100,000 or $250,000 but there is a breaking point we believe where people graduate from robo and go to traditional advice models.
“But they still expect a really good digital experience. You can’t go from a sexy robo advisor to an advisor that gives you a paper report once a year.”
Stich, a recognized fintech thought leader, maintains this validation middle ground, between the DIY and traditional delegator models, is where advisors must position their expertise or risk irrelevance.
He said: “They will lose clients [if they don’t]. They’ll have to go into a captive area where they working for an institution that provides them with clients. But if you are independent, or on your own, you need to embrace a digital strategy.
“Full disclosure, I have an advisor and I also have a robo type tool I use. The reality is, and you saw it on the news, when you have a market adjustment, Betterment, Wealthfront, not to pick on them, but they shut down, they turned off, pulled the switch.
“That’s an indictment on their ability to understand market forces because they are trying to have a computer understand it.
“With a standard advisor, you can look at their client portal, look at your plan online and recognise, even with a significant market adjustment that you’re still on track.”
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