The age of the robot advisor is upon us. If you’re not using the tools that run those systems, now’s the time to start the process. We tell you how.
We spent a lot of time last year talking about robots.
Automated wealth management systems -- driven by rules and a relatively robust form of “artificial intelligence” -- have captured billions of dollars in AUM by offering reasonable investment performance at a commodity price.
Some robo-advisors have already lowered their fees on small accounts to zero in an effort to achieve viable scale and carve out market share. The fear is that the robots will drive pricing throughout the industry to levels that can no longer sustain human talent.
But human talent can use the exact same tools and harness the exact same efficiencies. The easiest way to start is by opening a relationship with a turnkey asset management program, a TAMP.
Every year we profile the most dynamic TAMPs on the market.
The latest guide is out now. It’s bigger and better than last year — these companies are jointly running over $800 billion — and as always, it’s free. You can download it HERE.
Capture the robot edge
Robot investment platforms have had their most significant success with mass affluent investors (at best) who rarely have appreciable assets or financial goals beyond allocating the retirement accounts.
True high-net-worth households have remained aloof from the robo revolution for two reasons. First, they recognize the value that a flesh-and-blood advisor adds to the relationship. Second, they’re willing to pay a reasonable fee in exchange for that added value.
The conclusion here is not that everything is wonderful in the wealth management business. Advisors still compete viciously with each other for accounts, with those who fail to provide world-class service struggling to retain existing relationships in the face of innovative and aggressive rivals.
“Good enough” is no longer good enough to stay relevant in an environment where retail investors are constantly weighing their outcomes against real and imaginary benchmarks.
Offload all but the AUM generation
Those rivals often succeed because they’ve harnessed the power of robot investing -- automation, scalability, open-ended innovation -- to their own professional activities.
They’ve handed operational areas that don’t provide communicable value to commodity partners, liberating institutional resources for marketing, prospecting and client retention. The robot works ceaselessly in the background.
The advisor is in front of wealthy humans, making the case for placing funds into his or her care. If you’re like most Wealth Advisor readers, that kind of person-to-person networking is what you do best. You definitely do it better than a website.
In theory, a TAMP can handle every aspect of the wealth management cycle except for the person-to-person communications that differentiate each advisor as an individual.
If you’re uniquely talented at a particular task, you can keep doing it. Otherwise, if it isn’t essential -- or if an automated technology platform can do it better -- then it’s time to unbundle that task from your core competitive proposition.
The investment portfolio itself was once considered the core of the advisory relationship. It was how a professional demonstrated expertise and justified ongoing care, translating that attention into recurring fees.
Now it’s clear that robot systems can do a fairly good job at a fraction of the cost. Beating the robots can take a staggering amount of resources that, in turn, are a cost center most sustainably divided among multiple front-line advisors.
In effect, portfolio management slides toward the back office, where functions are easily commoditized and unbundled from what you do all day.
Every TAMP shunts the investment management function to world-class asset managers. TAMPs are more sophisticated than any pure robot system on the market today -- truly open architecture goes where your clients need to be while squeezing every sliver of post-tax performance available -- so wealthy investors still recognize the value.
And they’ll recognize your expanded capacity to focus on their needs and anticipate their concerns while maintaining ultimate authority over selecting the right asset managers and products for the portfolio.
That’s not a recipe for professional extinction or even a race to the bottom in terms of fees. This is how forward-looking advisors are getting ahead of the future by focusing on those aspects of the business that the client truly values: personal attention, insight into unique situations, service and trust.
No robot can do that. But with a robot on your side, you can.
We provide all the moving parts in our guide. It’s right HERE.
