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February 3, 2012
Missing the pointWealthfront, while interesting is essentially making the bet that their innovation is Price (25bps), Andrew seems to be going along with the idea that this is disruptive. It's not.
What would be disruptive is if they could match that price with low cost client acquisition. They haven't YET.
Making that work, further assumes that financial advice has a high price elasticity (sensitive to price). While it is elastic, price alone doesn't drive these consumer choices otherwise assets would have flowed far more quickly to Index Funds and ETFs.
Rachleff is very smart and they will be interesting to watch but they haven't cracked the code yet.
You All Don't Get It YetDan - I truly understand where you are coming from, but you need to understand that you are the exception, not the rule. A vast majority of "financial advisors" do little more than sell portfolio products.
The majority of the American public think that anybody who is a "financial advisor" is nothing more than a stock broker. Heck, that even applies to financial planners. How many times do I meet someone and tell them I am a financial planner only to have them ask me about the stock market or my best stock tips.
Even Andrew Gluck slips up here when he attributes Dan Ariely's comment to being about financial advisors. I don't know if that was the phrase Mr. Ariely used in his NYT piece or not, but it doesn't matter. To the public it is all the same.
The truth is, we've done it to ourselves. We rank ourselves internally based on AUM. We allow rags like F.A. and even JFP to focus on investment performance vs. other parts of the planning process ... and nobody holds Money, Bloomberg or any other main-stream media to task when they make the same erroneous generalization.
I love the airplane pilot analogy, BTW ... but how many travelers actually think that a computer flies the plane for the most part. If there is a malfunction, however, I'd rather have you or Sully in the cockpit than some damn machine. Same thing goes with my money (remember the HR block commercial about asking the box for answers?).
Are you kidding? 10 questions replaces a trustedIt would be useful for the article to narrow its definition of financial advisor, because I certainly don't see this as a threat to shaking out any of my business. Plus, I doubt if Andrew truly believes the 1800 Advisory Firms A4A services are no more valuable than highly trained monkeys, but please, speak up if that's how we should be categorized. If financial advice were nothing more than handing out asset allocations, then yes, it's a commodity. But it misses the boat by lumping all financial advisors into the "Key role" of being asset allocators. Maybe this puts me into the category of "those who don't know it's happening to them." But I couldn't take it seriously after going to Wealthfront's website. Ten questions? That's it? Ten questions on a website to replace what I do for my clients? You can't be serious? People make SERIOUS financial mistakes all the time - all generations, high and Low NW, high and Low incomes - optimized asset allocations and websites do not fix these problems or address human needs, people do.
I can't help but think Christiansen was never an advisor because trusted personal guidance is not a commodity and cannot be measured on the margin. And no matter how highly trained it is, a monkey will never understand a person's needs.
In addition to being a CFP professional I am a professional airline pilot, so I found it ironic Wealthfront compared itself to buying an airline ticket. I agree, if all a person needs is an asset allocation then get rid of the middle man. But selling the ticket and flying the airplane are two different matters. A professional advisor, in the true sense of being a professional (not just an asset allocator), doesn't sell the tickets, he flies the planes. They are the ones who get people safely from A to B, not the ticket.
Mean Variance Optimization FatigueI'm sick of the elite finance guys thinking they know what the public wants and needs from a financial advisor. They are often well-financed in their ideas, have a pretty cover, as they sneer with disapproval at pedestrian financial planners. But as long as they actually believe that people want investment mean variance optimization instead of financial advice, they'll fail.
There truly is a shift to bringing financial advice to the people who need it. But, Financial Engines with good GUI for Geeks isn't going to do it for most American families. As long as our profession keeps its collective heads in academic finance, MVO will be part of the solution, but only a small part. Technology and the evolution of consumer web behavior is re-defining financial advice, but the need for an understanding, trusted advisor is still paramount. These guys want to give the financial equivalent of a pill dispensing machine to replace a doctor/nurse.
Fill out your "symptoms" and we will dispense what you need. You'll like it better because it is smarter and more efficient. Bunk.
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