“That’s why I’m not up here telling you you’re all out of jobs. It [robo solutions] will replace part of what you do and part of how you define your value proposition, but when markets go up or down and there is planning requirements and intergenerational stuff, those are human skills and I think that’s how it’s going to play out.”
Welch and other panelists stressed that robo-advisors aren’t going away and that automated solutions will only become more sophisticated, so financial advisors will need to clearly define their value proposition to clients.
Judson Bergman, chairman and CEO at Envestnet, a provider of wealth management services to investment advisors, said it’s important to look at where the human financial advisor adds value, otherwise known as advisor alpha.
He cited an Envestnet study that found financial planning, including tax and estate planning, could add as much as 2,000 basis points over the life of a relationship. He added that other facets of a financial planner’s arsenal, such as systematic rebalancing, could also add alpha.
“The area where it’s harder to create alpha is in asset-class selection and portfolio construction,” Bergman said, adding that portfolio construction is where robo-advisors excel. “The biggest gaps [between what human and robo-advisors provide] are in the areas of financial planning and tax and estate planning.”
Bergman noted that Envestnet research shows 72 percent of affluent and high-net-worth millennials said they want a human advisor in the mix, but they want them in a very specific way.
Bergman pointed to his personal situation to illustrate how human advisors and robo platforms can co-exist. “I subscribe to TurboTax, but I also have a CPA, and I have no intention of not having a CPA,” he said.
One oft-discussed belief is that millennial investors will likely migrate away from robo programs and flock to human advisors as they acquire more assets and their financial situations become more complex.