The boom in digital investment advice this decade has heralded the era of robo-advisors, and Cerulli Associates forecasts the digital advice market will grow to almost $700 billion by year-end 2024. But all is not lost for human financial advisors—if anything, technology can make their practices more appealing to investors.
According to a report from Cerulli, the financial services research and consulting firm said that digital advice solutions can be the friend of advisory firms that incorporate them into their practices. That’s because the flood of financial information available online has armed investors with tons of data, but two-thirds of investors say they want human interaction versus relying just on technology tools when it comes to their finances.
“Technology tools can do an excellent job at helping clients and advisors through processes like data aggregation and initial assessment, but they are simply not the interface many prospects would prefer to use when working through the details of the ongoing comprehensive planning process,” said Scott Smith, Cerulli’s director of advice relationships.
In the report entitled “U.S. Retail Investor Advice Relationships 2019: Scaling Personalized Advice,” Smith said advisors increasingly recognize that investment management isn't their meal ticket, and instead realize their value proposition is their ability to connect with clients and address the full breadth of their financial needs.
“The real value of advisors will not be in capturing excess returns versus a benchmark, but in identifying the next best action in helping improve their clients’ outcomes,” Smith said. “In some cases, the answer may include a portfolio update, but it could just as easily be collaborating to assure that established goals actually align with what would provide clients a satisfying retirement.”
And technology can play a big role in providing better overall outcomes at wealth management firms, particularly when their platforms are designed to prioritize the client experience. Moreover, wealth management firms should promote the breadth of tools available to their advisors that help clients reach their goals.
For example, optimizing risk exposure within client portfolios is a way to engender conversations that reinforce the value of professional advice. “Providers can encourage this type of collaboration by supplying advisors with portfolio tools that allow them to easily illustrate how a variety of portfolios have behaved both historically and since the inception of the client’s advisory relationship,” the Cerulli report says.
Furthermore, the report states that while digital platforms can help assess emotional needs, their forte isn’t in serving those needs. As such, financial advisors provide the needed elements of trust and empathy that lead to meaningful client experiences.
“Over the long term,” Cerulli says in the report, “demand for financial advice will trend upward as investors choose to spend their valuable time on more fulfilling activities while recognizing the importance of professional assistance focused on their most valuable assets.”