As part of my series of blogs about robo advice, I’d like to suggest an additional solution that might finally lay to rest the “man versus machine” argument around investment advice. There’s little doubt that digital technologies—and clients’ familiarity with them—are prompting a new wave of robo-advisory options. But while clients may like to feel the power is in their hands in terms of managing a portfolio more cost effectively, they still appreciate the benefits of face-to-face interaction and the chance to discuss and review queries and concerns ongoing. Circumstances change. People change. The next generation of clients, having grown up with mobility and online solutions, want greater digital engagement. Many clients want the flexibility to take charge of their finances but have a skilled and experienced financial specialist in the background. And they can—a “hybrid advice model” combines the benefits of traditional advisory services with the simplicity and low-cost of the digital age.

Challenging traditional advice

In the past, segmenting clients based on net worth has meant wealth advisors can better target their efforts, products, and service offerings in line with their clients’ wealth-changing needs. But this has created product-centric and silo’ed operations within wealth management firms, often giving rise to multiple business offerings competing for the same client with different fee profiles for similar services.  Now, the increase in regulatory pressures, the impact of digital and clients’ desire for greater involvement in managing their portfolios is opening up the opportunity for wealth management advisors to offer a new way of doing business—one that uses the hybrid advice model.

What is hybrid advice?

Hybrid advice is an investment model that enables wealth managers to act both as a registered investment advisor and as a broker or dealer. Clients gain from not only an enhanced digital experience, but also the ability to make decisions while remaining engaged with a wealth professional. The model has three core benefits:

  • Promotes a new breed of holistic financial advisors: While advisors still specialize in providing investment management advice, they are also able to go beyond traditional business line siloes to offer a wide range of additional financial services—such as lending products like mortgages and credit cards, insurance, or tax planning.
  • Wealth advisors are freed up to add greater value: By collaborating on decisions and taking advantage of low-cost robo-advice platforms, advisors can add further value. Robo-advisor portfolios are commonly low-priced exchange-traded funds which help to breed fund diversification and better manage exposure and risk.
  • Advisors are more flexible and can adapt to changing client needs: By focusing more keenly on the relationship aspect of their services, advisors can help clients navigate through more complex investment needs that cannot be solved using robo-advice. Greater flexibility means clients can pay for one-off conversations with their advisor rather than be tied in to an ongoing fee-based pricing model.

The combination of digitally enabled investment platforms and hybrid advice is already in evidence.  For example, the Vanguard Personal Advisor Service is a managed portfolio product that is being seen as leading practice. Here, a Vanguard representative agrees a low-cost portfolio of Vanguard funds based on a client’s specific needs, implements it, and offers advice and adjustments. The service also offers an online experience that includes web content based on individual goals and personalized reporting.[1]

The ease of access to products through digital, to manage exchange-traded funds offered at a much lower cost than other products, has created a race to the bottom on the pricing of investment solutions. Using a hybrid model means advisors better serve clients and, using a robo platform, are freed up to focus on value-add, relationship management activities.

Interested in this topic? Then contact me, Kendra Thompson, for more.

[1] http://www.adviserinfo.sec.gov/Iapd/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=208874

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