{"id":2456,"date":"2023-03-30T17:49:18","date_gmt":"2023-03-30T17:49:18","guid":{"rendered":"https:\/\/testsite.socialitemediamarketing.ca\/?p=2456"},"modified":"2023-04-25T18:37:54","modified_gmt":"2023-04-25T18:37:54","slug":"the-robo-revolution-and-other-threats-to-the-way-you-do-business","status":"publish","type":"post","link":"https:\/\/new.queenston.net\/fr\/the-robo-revolution-and-other-threats-to-the-way-you-do-business\/","title":{"rendered":"The Robo-Revolution and Other Threats To The Way You Do Business"},"content":{"rendered":"
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The Robo-Revolution and Other Threats To The Way You Do Business<\/strong><\/span><\/h3>

By Jerry Butler\u00a0<\/strong><\/span><\/p>

Are you aware of Robo Advisors? They are currently taking market share in the US \u2013 one firm Wealthfront is bringing in $100,000,000 per month. What do they do? They use algorithms to evaluate clients risk parameters and make Index recommendations including re-balancing all for .25% of assets. Does your business model bring enough value added to justify the extra fees your clients are paying?<\/p>

The argument against Robo Advisors succeeding is the need for individuals to have personalized service. I agree most people want personalized service especially the older clients. Two groups that are using Robo Advisors in the US are those working at the technology companies and pro athletes (see \u201cWealthfront deal with 49ers is a big marketing score\u201d; Investment News).\u00a0 They are young and high income clients that trust and are comfortable with technology.<\/p>

When I came into the industry 20 years ago I could open an account over the phone, the account form was one page, I did not need a signature and I could buy the client an investment before I got a cheque. Have times changed? I often ask myself \u2013 with all the regulatory changes \u2013 who is better off? But that is a discussion for another paper. The point is times are changing.<\/p>

When we combine this Robo\/technology threat with the changes in regulation and the financial product distribution industry it probably means we have to make structural changes to our own business model.<\/p>


THREATS TO YOUR BUSINESS MODEL<\/strong><\/span><\/p>

Consider the following threats to the way you currently do business:<\/p>

  1. Many consumers currently consider investment advice a commodity. They see little difference between an independent advisor or broker or a bank or a \u201ccareer agent\u201d. That is why many will deal at the bank with an advisor with 15 \u2013 20 \u2026\u2026\u2026 hours not years of experience. The reason is the amazing branding banks have done (they have had a 100 years!). Banks are trusted. The advisor might leave but the bricks are still in the same place therefore who sits in front of the client has become irrelevant.<\/li>
  2. Consumers are getting used to \u201cshopping\u201d for financial products. Many check out term insurance prices and follow their investments on the internet. How many of your clients have or will leave the institution where they have their mortgage for 1\/8 of 1%.<\/li>
  3. Historically investment managers do not beat the Indices especially on a risk adjusted basis. According to the Economist (August 9, 2014) based on two studies in the Financial Analysts Journal (July\/August 2014) that fewer than 25% of managers even last 5 years. The main reason cited for under performance is that the managers are compared to all of the other advisors \u2013 therefore they are not trying to beat the index they are trying to beat the average.<\/li>
  4. Right now there is a large part of the population being neglected by conventional advisors. They are the younger person with little savings now. These are the people who use technology for every facet of their life. They depend on technology and that way of life. Will they continue to use technologies for their financial decision making when they have lots of money?<\/li>
  5. Technology is cheap now and always getting cheaper especially on a per transaction basis and cost of storage. The economy of scale is significant as there can be hundreds of thousands of clients but they can be slotted into a finite number of boxes where the algorithms do the bulk of the work.<\/li>
  6. The middle of the distribution channel \u2013 broker, dealers, mga, exempt market dealers \u2013 is squeezing advisors. They are cutting payouts and pushing costs and liabilities down to the advisor. While they are raising revenue expectations they are also cutting payouts. Lower revenues and higher expenses appear to be the trend. The survivors who will thrive are the advisors who are willing and able to change and adapt.<\/li>
  7. The industry has done very little to place the advisor in the community\u2019s mind eye as a knowledgeable, helpful and trustworthy professional. As a CFP I wonder where and what that organization is doing. I see very little return on that \u201cinvestment\u201d both from my perspective and from the \u201cclient\u201d perspective.<\/li><\/ol>

    I am sure I am missing many other threats but the above should give us all pause. Until the early 90\u2019s the consumer marched down to the closest bank or credit union and got a guaranteed double digit return. Then they all poured into mutual funds and basically got double digit returns through the 90s. Expectations of the consumer were off the charts. \u201cSnap back to reality!\u201d The 80s and 90s were not the norm. Now consumers realize if the long term returns are going to be 6 \u2013 8% that if they can reduce costs they are actually increasing returns.<\/p>

    \u00a0<\/p>

    INDUSTRY DISRUPTORS<\/strong><\/span><\/p>

    The white paper by Deborah Fox of the Fox Financial Planning Network \u201cHow To Build A Robo-Shield For Your Financial Advisory Firm\u201d describes how Robo Advisors are disrupters of the status quo. The four stages of Industry Disruptors are:<\/p>