Robo Advisors have been in the news lately as they are enlisting human help. Specifically, Betterment recently announced they are offering access to human CFPs and increasing the cost of their service. For the most part, Robos are commoditizing the asset management side of wealth management. If an investor is looking for a sound approach to managing assets, Robos can do it for the low low. This has increased the scrutiny placed on traditional advisers charging 1% or more for their services. Increased competition in the wealth management space is needed and should be welcomed by investors as the costs of services is decreasing while the quality of service is on the rise.
While all that is great, asset management is just part of the wealth management equation – Robos are catching on to that.
The recent news is evidence that Robos are realizing the most critical aspect of the wealth management industry: The Relationship. Until they fully embrace the importance of relationships, their growth will be limited. And the Robos need to grow…A LOT. Look at the valuations placed on the bigger Robos in recent funding rounds. Betterment, by itself, has raised over $200 million according to Techcrunch. Is there room for Robos to get much bigger than they are, for sure. But, direct to consumer Robos have no chance of capturing their needed share of the wealth management space. No chance. The average investor is opting for a real relationship. Maybe that won’t be the case 50 years from now..but for now it is. The real winners in the wealth management space moving forward will be the local advisers that offer decent and competitively priced asset management services in conjunction with high touch wealth management services.
We have covered the country over the last 8 months speaking with advisers from every area you can think of, we can assure you, there are plenty of advisers who are in the business for the right reasons and do right by their clients. They have relationships and trust with clients that’s been earned through bringing value to their clients. As Robos expose others in the wealth management business, it’s these groups and advisers that are set to benefit from the fall out…not the Robos themselves.
Here is my unsolicited advice to Robos: forget the direct to consumer efforts…you are wasting your time. Find those advisers, partner with them, leverage the local relationships. Bring an efficient asset management service along and a CFP hotline to the table, but bring it with a local adviser presence. There are so many advisers jumping ship from the traditional structure to better position themselves to be fiduciaries for their clients. Take advantage of that. Go hand pick the best of the best (it seems like you have the cash to do so!), equip them with your service, and let them do the rest. That’s when your growth potential becomes unlimited. Client’s don’t just need a hand to hold, they need a relationship.
Relationships, even the inefficient ones, trump efficient in this industry. The opportunity is there for those that can build scalable efficient relationships with an emphasis on the relationship. Any service seeking growth in the wealth management world should recognize that.