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Building Your Own Piece of the Future – Technology

Scott's Column | ,

“You better start swimmin’ or you’ll sink like a stone for the times they are a changin’.” –Bob Dylan

You have no need to fear the future, but you better be prepared for it. Failure to adapt to the changes that are taking place today will cause your business to sink like a stone tomorrow.

In the coming months, I’ll offer some thoughts to help you formulate your plan for dealing with the changes engulfing our industry. It’s our way of helping you stay afloat and even thrive in the future.

After the Robo Revolution

The advisor of the future will sit in a tech-driven cockpit that will put the tools of their trade at their fingertips. If you were hoping to be told what that cockpit should look like or how exactly to build it, I’m sorry to disappoint. The cockpit will look different for every firm. There is no one-size-fits-all answer.

Instead, of talking about the particulars of the cockpit, let’s explore a different and more interesting question. Once everything that can be automated is automated, what will advisors do? How will they add value? What will their role be? Will they even have a role, or will the robots completely take over?

Let me assure you that advisors will most certainly have a role and it will be an important one. It will just be different in some respects than it has been in the past.

The robos gave us a nice wake-up call and showed us that technology could to a lot to improve how we do what we do. In the long run they have made advisor’s lives easier and more efficient, giving them capabilities that they didn’t have before. But it will also change how and where advisors add value.

In the past, an advisor could build a pretty nice business offering investment management services for a 1% fee. But technology has changed that. Robos, model marketplaces, platforms, and online hybrid solutions, now make investment management services available for prices ranging from 35 basis points to free. Advisors can no longer justify a 1% fee solely in return for investment management. They will need to develop other ways to add value.

Incorporate holistic financial planning into their offering might work in the short-term and is a great service for an advisor to provide. But just as the perceived value of investment management dropped because technology made the manufacture and delivery of portfolios cheaper, the same fate is in store for financial planning.

Clients can go online today to get a low cost financial plans. Are these plans of the same quality that you could get from an advisor? No, but the portfolios you can get from a robo-advisor today also have their limitations. Yet the availability of these online alternatives affects the perceived value of the services that advisors offer.

So financial planning, alone, will not save advisors. This is also true of services like rebalancing and tax loss harvesting, which formed an important part of an advisor’s value proposition. They are also being automated and their perceived value is being compressed.

There is a lesson here. As you build the firm of the future, think about what can be automated and what cannot. You will need the new technology tools, but they will be table stakes. Everyone will have them. They will not set you apart from your competition. The key driver of your success in the future will be your humanness, not your technology stack.

Stay tuned as we explore how advisors can add value in the world of tomorrow.