Why Bionic Advisory Is The Solution For Financial Institutions And Investors
It’s Saturday morning at 7:32am and I wake up to the following Whatsapp messages from one of my best mates in Toronto.
Friend: “May give online wealth management a go. One of those robo-advisors.”
Friend: “Looking at XYZ or ABC, or DEF.” (Company names have been omitted)
Friend: “Got to compare what they’re offering and cost.”
Me: “Why are you researching at automated investing options?”
Friend: “Out of curiosity. My ‘financial advisor’ doesn’t do it for me. I don’t see the value. I never really hear from him. What am I paying him for?”
My friend is not the only person who feels this way. How he feels is one of the main reasons why robo-advisors exist, today; the lack of service for fees rendered; therefore, a low perception of value. This low perception of advisor or bank value spans right across the globe; from Toronto to Los Angeles; from London to Hong Kong. The perception of the banking and wealth management industry as a whole is exactly the same. For this reason the industry is under attack by disruptors.
This does not mean that all disruptors have solved my friend’s problem. Some of these disruptors are leveraging sentiment to their advantage and creating opportunity from it. Of the 3 robo-advisors my friend had mentioned, 2 of them have a team with very little client experience. Really smart people and financial product creators but seriously lack the client/investor facing experience required to solve the real problem. I recall working for a financial institution earlier in my career and the senior management would create initiatives for front office, client-facing staff that had staff saying, “Are you serious? When was the last time you serviced a client or spoke with a client that was not for a public relations stunt? You are so disconnected from the client.”
Granted, these robo-advisors have gained momentum but under the guise of low fees and that is the value being offered to investors. The real problem actually isn’t being addressed and that is a lack of service and a low perception of value!
So the answer from most robo-advisors, as they lack client-facing experience, is offer the same low level, low touch service that investors have been receiving and simply reduce the fees, right? Wrong. This is not the answer. This perpetuates the problem. Investors are frustrated with the historical high fees and the low level of service received for those fees. No one is complaining because of great service and high fees. Perception of value does not allow for that argument to happen.
The wealth management industry is being attacked and disrupted by robo-advisors because the sheer volume of clients an advisor must service along with identify new business opportunities is just too large. So the majority of robo-advisors on the planet have used this reason along with the high fee argument as their entry point into the wealth management industry. The popular argument created by these robo-advisors and publicists are shaping the investor and wealth management industry’s mind to choose one service over the other. This is a dumb argument.
Source: CFA Institute
Throughout history, technology has been created to complement human attributes; make life easier; focus on more important and sometimes more complex tasks. In the case of robo-advice or automated investment management, the technology is designed to handle only one aspect of the wealth management process. A robo-advisor streamlines that long and arduous process of portfolio construction and asset allocation exercise that an advisor performs for each client. For too long, an advisor has allowed the weighting of his/her value to be skewed towards portfolio construction over the qualitative and empathetic aspects of their profession. So it is no wonder why there is such a large debate about whether an investor should choose robo-advice or stick with a human financial advisor.
Banks and asset managers are also jumping on this opportunity as well. This is an opportunity to separate and segregate low revenue and low touch accounts and index these clients into a low cost service. Are these companies paying attention? Do they understand what their own clients are asking for? These clients want service. So service, them!
Here’s the solution; why not leverage a robo-advisor and compliment the human advisors? Implementing a robo-advisor to compliment the human aspect of wealth management will, in turn, make the advisor extremely efficient. We call this Bionic Advisory. That long and arduous task of creating and managing portfolios is eliminated. With the right robo-advisor, the client can receive a bespoke portfolio that is tailored to his/her risk profile and goals. Advisors are now free to reach out to all of their clients in a timelier manner and prospect new business to reach those all-important targets the banks love to create for their advisors that increase shareholder value.
I can guarantee that the first major banks to start the initiative and trend of Bionic Advisory will force other banks, institutions and the industry as a whole to do the same and reduce the threat of disruption. If this initiative is executed correctly, then, fees won’t have to be reduced to such an extent. The investors will actually perceive value in what they’re paying for.
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