Investment management has always been a traditionally relationship-oriented business. It requires a certain level of trust, faith and sense of community for people to hand over their life earnings, college funds, and retirement money to a third party.
Technology today is disrupting that connection. People are forming social bonds and networks online. Social skills are being measured by Twitter and Instagram followers or Facebook likes. The millennial generation has built an unprecedented sense of trust with technology, particularly with their smart phones, and they demand transparency in all of their transactions.
However, the trend toward technology-based relationships over face-to-face interaction shouldn’t discourage the investment management industry.
Technology is a powerful ally which can help investment firms empower their distribution partners.
The structural changes in workplace and workforce are challenging some of the basic constructs around retirement products and the wider investment industry.
For one, robo-advisors, or algorithm-based advisory services, have become the talk of the town. A number of companies, such as Robinhood and Betterment (which has more than $3 billion in assets under advisement), have raised an incredible amount of money building online tools that deliver automated or algorithm-based portfolio management advice, offer automatic portfolio rebalancing or tax-loss harvesting and provide other services that help clients determine how to invest their money.
Further, trends, such as gig economy, are changing the type of products and services new customers will need. (A gig economy is an environment in which temporary positions are common and organizations contract with independent workers for short-term engagements).
For instance, the rise of the gig worker and the independent contractor, is specifically shifting the requirements for retirement investment products (40% of American workers are expected to be independent contractors by 2020, according to a study by Intuit).
Are the advisors bound to become extinct?
Robo-advisors collectively manage an estimated $20 billion, which is predicted to reach $450 billion worldwide by 2020 , according to research firm MyPrivateBanking.That’s just a tiny chunk of the $16 trillion individual investment business, but it’s big enough for investing heavyweights, including the likes of Charles Schwab and Fidelity, to take notice.
Charles Schwab robo-advice platform reached $5.3 billion in assets under management since its launch in March Financial Times writes.
Meantime Fidelity, an early adapter of robo-advisors started Fidelity Go, an automated service that creates a portfolio of low-cost investments for investors with as little as $5,000 to invest.
Still, while technology is forcing investment firms to adapt, past approaches aren’t going away either.
The stock market upheaval in 2016 has made customers looking to advisors and investments firms leaning on humans to intervene. Charles Schwab, had a one-third increase in customer calls since December and an uptick in online chats, Financial Times writes. (Charles Schwab and Other Robos Resort to Humans to Quell Nerves).
Even firms like Betterment lean on human interaction to offer complicated financial planning to their clients.
Further, a recent study, in spite of the technology dependence of the millennials, found that the ‘affluent millennials’ believe financial advice from an advisor is a must have.
Source: Affluent Millennials whitepaper (LinkedIn and Ipsos)
With investors seemingly looking for the best of both worlds, the question is, are the investment firms and their distribution partners working together to be the advisor of choice and offering an omni-channel approach?
A number of forward thinking firms, such as Putnam Investments, have launched initiatives to empower and educate their advisors.
Meantime, Vanguard Group, which eschews the robo-advisor term, views its new “Personal Advisor Services” platform as a hybrid approach. It offers technological tools online but also gives clients access to human advisors.
Vanguard CEO recently talked at Inside ETF conference recently on how Advisors MUST tell their story.
If leveraged correctly, robo-advisors can be smart colleagues that empower the advisors to be millennial ready.
In today’s uneasy, choppy global markets, investment management firms and advisors have an unprecedented opportunity to leverage technology to become the life coaches for the next generation.