Robo and hybrid robo-advisories will improve over time and likely take market share from both Gen X and Y cohorts—especially those with less complex needs. We believe this will benefit all as these investors will receive a solution that most FAs are ill-suited to provide at similar cost. Unfortunately, this may contribute to advisory fee compression over time. And those converted to robo advisory may decide to remain with the robo solution even as they join the ranks of the HNW. Still, we are convinced that robos do not currently pose a significant disruptive threat to HNW advisors embracing best practices.
Like Commander Data, robo algorithms and digital eyes are no match for human vision, understanding and empathy. Holistic client solutions that embrace best practices including an after-tax approach, core-satellite philosophy employing SMAs, asset location management, gain/loss budgeting and tax-loss harvesting will continue to successfully support HNW investors.
We believe poorly performing equity markets currently pose a greater risk to investment advisors than disruptive robo advisory models. A decade-long combination of unanticipated events has caused equity markets to become fully valued, while interest rates have fallen to levels that threaten the lifestyles of retired investors. Deflationary pressures, less favorable demographics (as boomers age) and high debt levels present problems that will demand new thoughtful investment solutions and sophisticated investment strategies provided by dedicated investment advisors.
We would like to recognize our colleague and great friend, Doug Rogers, for his groundbreaking work in the area of tax-aware investment management. Doug passed away in February of 2014.
Steve Riley CFA, CFP; and Rick Furmanski, CFA, CFP, are tax-aware portfolio managers at Clearview Wealth Solutions in Lake Zurich, Ill.