ELITE ADVISOR BEST PRACTICES

You Have a Great Business

It’s no surprise that the Robos want a piece of it

By Glenn Freed

Key Takeaways:

  • Like CPAs a decade ago, elite advisors who are slow to adapt run the risk of being commoditized by technology.
  • Robo advisors are now offering investor risk assessments, asset allocation and asset location services, loss harvesting, and more.
  • Machines can automate routine client service activities, but they cannot replace human creativity and judgment—essential for delivering a high-value client experience.


The growth in the number of registered investment advisors (RIAs) who provide wealth management services to HNW families has been well-documented in the financial press for many years. Elite advisors are routinely featured in the Wall Street Journal and Fortune magazine. This well-publicized success naturally attracts smart entrepreneurial people hoping to investigate the RIA business and see whether there is a business opportunity to build a better RIA. The next thing you know, these entrepreneurs are using technology to build what they think is a more efficient RIA model, and all we start hearing about is how great the “Robo” advisor is.

Technology as a change agent

The RIA’s use of the Internet for client acquisition has been around for a while. For many years, Mark Hebner’s $2.6 billion RIA Index Fund Advisors Inc. was the Cadillac of web sites. It offers data as a marketing tool to the investment public. Index Fund Advisors charges a percentage of AUM for its services. Another firm right in the backyard of Silicon Valley is Steven Evanson’s $3.5 billion RIA, Evanson Asset Management LLC, which charges a low-cost fixed quarterly retainer fee for its investment management services. You might not be familiar with these firms because they primarily use Dimensional Fund Advisor mutual funds, Vanguard mutual funds and ETFs.

The bottom line is that Schwab and Vanguard have heard of these firms and so have the VCs in Silicon Valley. In response, it should be no surprise that Charles Schwab launched Schwab Intelligent Portfolios in March and Vanguard officially launched Personal Advisor Services in May with $17 billion of AUM. Elite financial advisors need to figure out how to respond to this potential business threat.

Warning: Don’t let yourself become a commodity

Do you remember when you used to believe that paying an expert to prepare your tax return was considered a high-value service you received from your CPA? Then what happened? CPA tax preparers became more efficient in preparing your tax returns because technology resulted in increased fee competition. Taxpayers learned that if they changed CPAs, they could lower their tax preparation costs considerably.

The next thing that happened was that CPAs started to reduce their personal touch with tax clients because technology reduced the need to meet in person. Turbo Tax became a household name, and this increased taxpayers’ use of self-preparation software. A tax practice now is viewed as a commodity service that has a relatively low business valuation. Of course, there are exceptions to the rule, as there are many high-value-added CPA tax planners. But the point is that technology has generally made tax preparation a commodity service.

How does this discussion relate to the elite financial advisor? Technology has the potential to change the public’s view that investment management is a commodity. All you have to do is look at the prices being charged for investment management and you can see that financial advisors are highly vulnerable to disruption.

Of course, you are going to say that you do more for your clients than a Robo advisor can. That may be. Just remember that some Robo advisors are now doing investor risk assessment, asset allocation, asset location and loss harvesting, and the list of services they provide will only grow. Other Robo advisors are now offering interaction with a “live” financial advisor as part of their service offering.

Let’s stop the argument that you do more than any automated advisory system can and that you will never be replaced. The question is how you should respond to the threat of Robo advisors. Elite advisors clearly articulate their value proposition to clients, and it centers on more than simply investment returns earned by their clients.

Impact of technology on investor behavior

Everyone claims to be a long-term investor. The question is, what is long term? In my article Anchors Away, data showed that in any 15-year rolling-forward window, the Russell 3000 index had a positive return for the time period 1979 through 2013. Now, ask your clients whether they can withstand a 15-year wait to earn a positive return from investing in the stock market, and most clients would say no.

I surveyed a group of advisors recently, and 90 percent said they looked daily at the returns of the stock market right on their smartphones. Technology has made it simple to follow the stock market. I suggest that you’d like to know whether your clients are looking at the returns of their investment portfolios on a daily, weekly or monthly basis. More important, you would like to know when your clients have changed their viewing behavior from, say, monthly to daily. Elite advisors have technology associated with their client portal that gives them this information.

Impact of technology on knowing your client

The Robo advisor has a way to track what your client is doing on the Internet too. If your clients are viewing real estate web sites or charitable giving information web sites, they might be considering a significant financial event. Elite advisors want to assist their clients with all their significant financial events. The point is that technology will help you better serve your clients. Technology is a tool to obtain useful client information. The future elite advisor will adopt the use of information-gathering technology.

Dynamic financial planning

Elite advisors meet with their clients to gain a deep understanding of their financial needs and goals. Technology can help you gather the comprehensive information needed to build a wealth management plan. Elite advisors bring to the financial planning process expertise across a breadth of technical planning areas that only a team of experts can deliver to your clients.


About the Author

Vericimetry is an academically based, quantitatively structured investment adviser providing capacity-constrained asset class strategies to an exclusive group of elite financial advisors. Website: www.vericimetry.com.

Glenn S. Freed, PhD, CPA, PFS, is a leading investment and tax expert in the investment management industry. Dr. Freed is the Chief Executive Officer of Vericimetry Advisors LLC, which intends to make necessary filings to become an investment advisor registered with the Securities and Exchange Commission during 2011. Dr. Freed has 25 combined years of experience in investment management, tax and accounting research, education, and tax advising. He received a PhD from the Graduate School of Business at the University of Southern California and a BS in accounting from the University of Florida.

Phone: (818) 813-1351