Responding to the Robo-Advisor Trend


From self-checkout to automated driving, innovation keeps finding ways to replace an “unnecessary” human interaction with simple, algorithm-driven tech. In the fintech space, robo-advisors have made a splash as the next generation’s alternative to traditional financial planning. With almost 70 trillion in assets queued to pass to the next generation, this is a conversation advisors need to be prepared for.


The DIY Generation Starts Investing

When we are talking about the generation that has started tackling house flips based on YouTube videos they’ve watched, robo-advisors present a sense of straightforward and financially accessible investing. If you are a financial advisor, this conversation is one you need to be prepared for.

The emergence of the robo-advisor shouldn’t be much of a shock to anyone when we reflect on technological trends over the last twenty years. Many industries are experiencing this tension – Zillow vs. realtors. TripAdvisor vs. travel agents. The list is long. In industries where tech is attempting to overtake a traditionally human role, there’s a common trend.

  • The human side focuses on having an expert craft a personalized solution from a relational, experienced-based approach.
  • The tech side focuses on removing barriers to access and giving users a data-driven experience.

Responding correctly to the robo-advisor trend starts here: understanding what is attracting younger households.


Why Robo-Advisors Are Gaining Steam

There are a variety of reasons investors are choosing robo-advisors to invest their money, and each investor’s personal circumstances determine which reasons matter to them. Let’s use a few personas.

Low-margin, low-net-worth investors.

Working with a financial advisor can often be seen as a luxury that really only matters when you have enough money to consistently invest in things like retirement and college savings for your kids. Why would you need to pay a financial advisor if you don’t have enough margin to invest yet?

High trust in the digital age.

The spectrum of trust and comfort using technology heavily skews towards younger investors, but that doesn’t limit the pool to low income. Robo-advisors are capable of attracting clients who have million dollar portfolios.

Sense of hobbyist involvement.

With social media emphasizing investing as a daily game to be played (instead of a lifelong financial vehicle), many have begun to view investing primarily as a short term money multiplier. Low-cost platforms like Charles Schwab Corp.’s Intelligent Portfolios provide easy access to participate in “the game”.


Creating Clear Contrast in Your Value as an Advisor

Each of these personas involve a different conversation when it comes to contrasting your work as an advisor with the algorithm sitting across from you. Your response needs to be well placed for their understanding, not your view of how things should be. To help you facilitate clearer, calmer conversations, here’s how we recommend approaching the conversation.

Don’t Be Anti-Technology In Your Response

Advisors aren’t anti-technology. Your office uses remarkably advanced platforms and systems to execute financial plans (many of which used to be done manually by people). So while you may not “trust” the performance of robo-advisors, this probably isn’t the best place to plant your flag. You can say it’s not yet proven, but the safe bet is that these technologies will continue to improve in performance and accessibility. In the long run, you’ll need a better answer to demonstrate your value.

Focus on Investing as a Single Tool, Not a Silver Bullet

We talk about this topic frequently – investing may be the headliner of the financial planning world, but it’s not the only pillar of a financial plan. It is a vehicle (an important one) to help accomplish personal financial goals.

A robo-advisor may be better called a robo-investor, because they are not going to help you gain a comprehensive view of your financial world and your long term goals. They’re not going to review things like your insurance structure, your wills and estates, or your charitable giving. Your value isn’t just in “picking the winners”. It’s in synchronizing a complete financial plan designed for their personal vision of the future as a household, not as a user profile.

Make Them Aware of Pitfalls that Grow as Their Portfolio Does

We called investment a vehicle a minute ago, and like a vehicle that can get you from point A to point B, it can also be operated poorly with tragic results. Unadvised investing isn’t just a matter of what you invest in. It needs to account for questions like how much of your cashflow should you invest and how often? Or more importantly, how do you manage your tax bracket with when and how much you sell? Missteps in these areas are more costly than most robo-advisor clients realize.

Remember That a Human Touch is Critical in Critical Moments

Money affects every part of life, and it plays a critical role in some of life’s hardest moments. When a loved one is hospitalized or passes away, no robo-advisor is picking up the phone to walk you through the financial decisions with a clear mind. (Let’s not talk about forgetting passwords?)

While some clients may be resolute in their sense of confidence and optimism, it may be helpful to ask them how they would handle those few, but critical, moments when a clear-headed, 3rd party advisor is critical. How much of their family’s financial future are they willing to place in the consolidated hands of an algorithm?


Watch Your Tone and Know Your Worth

In these different points, being clear-minded is the difference maker. As an advisor, you need to be confident in the value you can deliver to clients. You don’t need to be an anti-robo-advisor crusader. More importantly, people are not always in the best moment to listen, and you don’t want to prune relationships that may be a matter of their season of life rather than the opinions of the moment.

In the meantime, the other best way to respond to the robo-advisor crisis is to create an exceptional advisory practice. From integrated tech stacks to a human touch to scaleable investment management, WealthPlan Group offers advisors the tools and resources they need to create a value-delivering practice. If you’re looking to bolster your value to future generations of clients, let’s start the conversation!

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