By Bill Broich
Computers are getting smart, very smart. Smart might be the wrong word because it implies intelligence and since computers are machines, they cannot have any intelligence beyond their programming.
So a better explanation is probably that the programmers are smart, very smart. Computers have become so much a part of our lives, from phones, to cars to money, computers are used everywhere.
That brings me to a part of the evolution to our industry that is just too much for me.
Robo-advisors are a class of financial advisor that provides portfolio management online with minimal human intervention. While their recommendations may vary, they are all based on algorithms that originally served the traditional advisory community, which has relied on algorithmic templates to conduct portfolio management since at least 2005.
Legally, the term “advisor” here applies to any entity giving advice about securities. But robo-advisors generally limit themselves to providing portfolio management (i.e. allocating investments among asset classes) without addressing larger issues of tax, estate and retirement planning, which are also the domain of financial planning.
The tools they employ to manage client portfolios differ little from the portfolio management software already widely used in the profession. The main difference is in distribution channel. Until recently, portfolio management was almost exclusively conducted through human advisors and sold in a bundle with other services. Now, consumers have direct access to portfolio management tools, in the same way that they obtained access to their brokerage houses.
The financial industry is rapidly moving towards robo-advisors by educating their clients and by limiting access to real live humans. A good example of this would be a call to your credit card company; you will discover it is nearly impossible to actually speak to a human. I also have a really smart car, when it is ready for service; it sends an email to the dealer and actually makes an appointment to have the service completed. How can that be?
As the financial industry moves to more and more to lower cost options the separation from human interaction. With computers there is no pension to fund, no health insurance and no actual cost other than maintenance. In other words, robo-advisors mean more profit and more need for humans in the work force.
The financial industry estimates that robo-advisors can reduce customer service expenses by more than 80%, but at what actual cost? The cost of course is in re-training the customer base to accept them as actual customer service. If we tolerate this level of service, this will always be our level of service.
I am in the financial industry; my office and I provide customer service as well as supporting my client’s needs. I do not use robo-advisor services; I use human-advisor services. My thinking is simple, I hate talking to computers and I think my clients would feel the same. Does that mean I am not in tune with progressive thinking? Does it mean my business will not be able to compete? What exactly does it mean?
To me it means that I care enough to provide customer service at a level that I would expect myself. It also means that as our target market ages and is replaced by the next age level the expected level for customer service will already be set. Robo-advisor will become the norm as time goes on, and the computer approach is going to win.
The price is also high as this conversion takes place, high in the sense of our evolving annuity business. It will mean that a push will be on to make the larger marketing organizations bigger. The strong getting even stronger. The move to big operations will be clear and defined, the smaller agent or agency with compacted and forced out.
How do we as individual agents continue to succeed and flourish? My thinking is simple, provide “real” customer service and offer human interaction. I assure you that other than an answering service, computers will not interact with my client base.
As consumers we need to face facts, the move to a computerized relationship is already set in stone; just as the company sponsored pension has faded away, the less human interaction the better. That is how big business sees it and how our industry will evolve.
But, we don’t have to play; we can provide the human factor of our industry and allow our clients to receive much better customer service. Customer service they deserve.
More info here: http://en.wikipedia.org/wiki/Robo-Advisor