Four Keys To Unlock The Future

As investment management becomes more and more of a commodity, financial advisors must readjust and find out what their true value is to their clients. In the future, portfolio performance won’t be enough. Nor will your talk about economic events and financial markets.

Even the best advisor’s investments will underperform others occasionally, especially when their costs overlay other investment manager fees. But if this is what advisors want to focus on, in the end robo-advisors will eat them alive.

Key One: Defining the Value You Add

So how do advisors find their new source of value? They could look to the work of firms, Vanguard for example, that have tried to quantify and qualify it. Take Vanguard’s “Alpha” concept, which quantifies the things advisors can still bring to the table, such as their ability to rebalance portfolios, manage income and coach clients.

In other words, an advisor’s quantified value in this case can be as much as 3%. While robo-advisors may claim 75 basis points of that value by helping with cost effective implementation and rebalancing, every other source of value benefits from a human being who is giving advice—two-thirds of an advisor’s value should still be intact in the future if advisors develop their value-add appropriately.

The greatest value that advisors can add comes from their behavioral coaching of their clients. A human hand is more persuasive than an algorithm at telling clients what to do. When stocks have fallen into correction or bear market territory, a person telling a client to avoid selling on fear will be more persuasive than a pop-up message on a computer saying the same thing.

Jack Bogle puts it this way: If a client asks, “What do I need you for?” The answer is: “I’m here to keep you from doing anything.”

There is a reason wealth management advice is still a people business.

This does not mean, however, that advisors should shun technological change. Even impressive fintech such as robo-advice can help advisors deliver their value more effectively and efficiently. But it can only help.