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Don't Be "Short-Sighted" In Evaluating Role Of Technology - Study

Eliane Chavagnon, Editor - Family Wealth Report, June 15, 2015


Threat or opportunity? A Pershing study has found that advisors are split on the impact of "robo" advisors.

The digital advice trend is certainly important, but is merely one area where advisors can shape their technology approaches to enliven their overall a wealth management strategy, according to recent insight from Pershing.

Advisors recently polled by the BNY Mellon firm were fairly evenly divided in their views on whether digital or “robo” advisors are a competitive threat or irrelevant to their business: just over a quarter (27 per cent) of 350 (RIA, wirehouse and banking sector) respondents said digital advice is irrelevant to their practice and nearly another quarter (23 per cent) said it represents competition.

Although most are familiar with the concept of robo advice, only a relatively small proportion of advisors currently use related technology, noted Ben Harrison, head of business development and relationship management at Pershing Advisor Solutions. "The biggest opportunity we see for transformation is for advisors to automate low-value tasks, expand their reach and profitability," Harrison said.

According to Pershing’s Third Annual Study of Advisor Success: Confidence and Concern in the New Digital Age - the findings of which were unveiled this month at the firm's 2015 INSITE conference - just 19 per cent of advisors believe digital advice can complement their practice. Price was, unsurprisingly, cited as one of the most threatening elements of the trend, underscored by previous research suggesting that many investors believe the investment advice that most financial advisors offer is not worth the 1 per cent fee, the firm said.

The study serves as yet another a reminder that as investors and advisors respond to digital advice trends it is as crucial as ever that advisors educate clients and prospective clients about the value they can provide in relation to the fees they charge - and in an increasingly crowded market. This is especially key with “proactive financial management” among the global high net worth on the rise, as wealthy individuals are increasingly hands-on with their finances (see more here).

“It is short-sighted to limit the ways technology can complement a business to only digital advice,” said Kim Dellarocca, managing director at Pershing. “Digital advice is important, but it is only one area where a firm needs to evolve their technology strategy to deliver a wealth management experience that mirrors the expectations of today’s consumers and workforce.”

Digital tools, such as those that automate client communication processes, for example, can help preserve the "high touch" experience many advisors are known for, the firm said.

David Winslow, director at McGladrey Wealth Management, recently described the robo advisor issue as “immaterial” because it is based on too many generalities. While there is certainly appetite and a market for it, those operating in the $0-5 million space have the greatest cause for concern, due primarily to fee compression. “We’re not in that market,” Winslow said. “Our families want customized solutions, driven by a high level of intellectual capital - I don’t see how you can migrate that online.”

With that said, a report by Citi and the Economist Intelligence Unit in March said that “new wealth builders” - those with assets of between $100,000 and $2 million - are overwhelmingly self-directed investors - an interesting finding given the wealth management industry's focus on the activities of younger clients, and how their financial needs become more complex as their assets grow.

Meanwhile, Mike Foy, director of the wealth management practice at JD Power, previously told Family Wealth Report that Gen Y and Z investors in particular tend to be validators rather than delegators in their approach to investing, so - even as their wealth accumulates over time - self-directed firms that offer robust guidance without a personal financial advisor may be able to continue to attract and retain clients who might in the past have migrated to the full-service channel.

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