We briefly chatted about the appeal of robo-advice back in July, but I wanted to delve a bit deeper into the topic today. It’s true that robo-advice has gained a relatively small share of assets under management (AUM) so far, but its growth is both rapid and accelerating. But the important question is what can robo-advice actually do for you—and your clients—right now?
How it works
When I talk about “robo-advice,” I’m referring to all of the automation and digital techniques being used to help clients develop financial plans and build and manage their investment portfolios. In a nutshell, robo-advice uses simple surveys to gather informzation about clients, and assess and categorize their needs. Based on the results, a solution is generated and implemented, and the results are monitored.
Let’s take a closer look at each step to see where current robo-advice capabilities shine and where they fall short:
Understanding client needs: Robo-advice does a good job of gathering client information, considering outside accounts and at assessing risk tolerance. It is less effective when it comes to understanding complex client needs and preferences.
Proposing solutions: Robo-advice can be used to help develop financial plans and propose standard asset allocations. Its ability to support securities selection and portfolio construction are still emerging, so custom client solutions are best left to human advisors for now. This is an area to watch though.
Implementing solutions: Robo-advice is well equipped to execute standard tasks like opening accounts and, to some extent, transferring assets. But anything requiring persuasion or judgment—encouraging clients to take action, for example—is an enduring strength of human advisors.
Monitoring results and adjusting strategies: Quarterly and annual performance reviews, dashboard metrics, status alerts—all of these functions are currently within reach for most robo-advice services. Here too though, human advisors have an important role to play in explaining complex topics and reassuring clients through tough markets.
In many ways, current robo-advice capabilities are still fairly basic. But thanks to growing competition and emerging technologies like cognitive computing, they’re evolving fast. Next time, we’ll take a look at what we can expect from robo-advice services in the future.
Until then, check out this report: