Using the Automated Advisors Revolution to Your Advantage
It’s a fact. Robo-advisors and fintech innovations are making it increasingly possible for clients to manage investments directly without a financial advisor intervening.
The questions is, what can human financial advisors offer that robots can’t? The answer is plenty.
Take this advice for honoring your skills as an empathetic, intuitive financial thinker than machines can’t replace.
Rise of AI Advisors
Digital wealth managers (aka robo-advisors) are clearly central to insurance and financial firms’ plans to stay competitive.
Since 2013, private market investors have pumped more than $1.9B across 169 deals spanning 18 countries into robo-advisors, reports CB Insights in a recent study.
The rationale is that there’s enormous pickings to be had in the wealth management market, with an “estimated $36T projected to be passed from the Baby Boomers to millennials by 2061.” Digital advising is the way to harvest a lot of that money, the study indicates.
Two early robo-advisor players Betterment and Wealthfront are now the largest in terms of customer growth and assets under management, the CB Insights report says, with approximately $17.5B in assets for over 535K client accounts between them.
Wealthfront in particular is actively moving away from “the traditional human-advisor model” and has launched “a fully-automated financial planning service called Path, and a portfolio line of credit that streamlines the traditional bank loan process.”
So what exactly are the bot advantages? Cost-savings and reduced fees.
“By automating the human advisor, robo-advisor startups have lower overhead, and in turn, have waged an industry pricing war by lowering fees and in some cases even eliminating them,” according to CB Insights.
How’s this happen? The bot advisors use algorithms “to make risk-adjusted portfolio allocations” and track “investor’s behavior to automatically tailor the portfolio when it swings outside of the prescribed recommendations.”
This is proving more cost efficient, says CB Insights, and could be more profitable for the customers than the traditional human management model.
Tax Overhaul = Advisor Bonanza
That said, it’s also a great time to be a human financial advisor. The Tax Cuts and Jobs Act signed into law in late December is making CPAs and financial planners much-sought-after resources for clients who want to understand what it all means, according to The Wall Street Journal.
They need careful explanations and handholding; as one financial advisor told the paper, “We’re almost like a financial therapist, if you will. We’re trying to calm people down.”
Automation can only go so far. If you’re a human advisor looking to provide what machine-learning algorithms can’t, follow these tips to keep your clients coming back to you for advice:
1. Be an expert on your product’s purpose.
Depth of knowledge beyond superficial features/facts will help you position a product correctly for a particular client and resolve questions. For insurance products like annuities, that means understanding risk management, advises Nick Argol, director of training & product for CBLife.
The core concept of an annuity is that it’s there to provide income for the rest of your life, he emphasizes. So, the risk you’re managing with an annuity is the risk that you may outlive your financial resources—essentially, the risk of living too long.
Next Phase? Algorithms that automatically adjust to a customer’s risk management thresholds throughout each life phase, CB Insights reports, so that robot-advisors can provide longer-term service to clients.
Diversions: When you divert the focus from an annuity’s core concept—stable income—to added annuity features, such as tax deferments and withdrawal benefits, you get into trouble. It’s when advisors don’t understand that the ultimate goal is to create benefits for life that all those other features get distorted, says Argol, and the product gets sold incorrectly or wrong advice is given or wrong actions are taken.
An annuity is like an automobile, says Argol. “An automobile is designed to get you from point A to point B. You just need brakes, an engine, and a steering wheel. An annuity is similar. It’s originally designed to provide you with that stable income. Additional features and benefits enhance that and make it all the more marketable.”
Takeaway: Really, less can be more when you’re working with most clients. It’s difficult to sell somebody something that’s complicated—but that doesn’t mean you, the advisor, shouldn’t have full understanding of all the complexities yourself.
2. Know your market data—and your own data.
It’s not enough to know the competition’s MYGA annuity rates and to clearly understand how annuity sales are trending overall. You need to know your client base (your customers) very well—their personalities, occupations, demographic details—and you need full command of your business metrics, especially your revenue, according to an Investopedia article on best practices for financial advisors.
Set up systems to track your revenue by product, client type, client source, client profitability, the type of client, source of client, and profitability, says Investopedia.
Benefit: Your ability to knowledgeably direct clients, build their trust, and analyze your performance will be based on your data proficiency. Your ability to go one better than a robot depends on your ability to interpret and use that information to help your clients make prudent choices.
3. Ask client for feedback.
This seems a no-brainer but it’s vital to success as an advisor. Getting feedback is intrinsically connected to keeping clients happy, the Investopedia article advises.
The idea is that you’re not just asking for a quick online five-questions response. It’s more a matter of having frequent, real conversations with clients to ask what they think and having a frank exchange with them about your services, particularly what you need to improve on.
Happy clients stay with you—and build your business for you via word of mouth.
4. Anticipate client questions and have the answers ready.
“I’ve had situations where I’ve had to describe every single word of the contract,” says Argol. “An agent often takes for granted what we know, but for the customer, it’s a different language. They need and deserve an explanation of what the contract means.”
Patiently answering questions and going the extra mile when those questions seem ridiculous is what good human advisors do. The benefit is that you then build trust—which is critical to your business.
“I’ve seen agents and advisors that in my opinion have no right being in this business because they serve one only purpose and that’s to expand their bank account,” says Argol. And customers pick up on that.
Partnering with Machines
Robotic process automation (RPA) and cognitive intelligence (CI) technologies are set up to help insurers do more with less, freeing up staﬀ for higher-level work, Deloitte’s Center for Financial Services reports in its study, 2018 Insurance Outlook: Shifting Strategies to Compete in a Cutting-Edge Future.
To benefit from RPA and CI technologies, Deloitte recommends insurers do the following:
- Automate “mundane, box-checking-type tasks in underwriting, policy administration, and claims,” and in turn free up thousands of people hours. The study cites one large insurer that had a “productivity gain of 68 percent, coupled with improved accuracy and compliance,” by automating basic tasks.
- Use key CI technologies such as “handwriting recognition, image, audio, and video analytics, and natural language processing” to assist advisors with client assessment.
The result, says the study, is that “talent and capital may be repurposed for more complex tasks.”
And that means companies will have to rethink how they function, redesign job descriptions, and be ready to retrain employees “for higher-level duties requiring human judgment.”
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