Robo-advisors are to financial planning as Uber was to taxi services: disruptive. According to a report by MyPrivateBanking, assets being managed by all registered investment advisors now total around $5 trillion, with robo-advisors managing roughly $14 billion of those assets. If not already a cause for concern, this amount is set to increase over the next few years.
Millennials are the greatest source of future growth for financial advisors, but many of them are choosing to get their advice from robo-advisors. Here are the top 6 tips on how financial advisors can woo millennials away from robo-advisors.
Top problems with robo-advisors and six tips on how financial advisors can woo Millennials away from robo-advisors:
Generation Y is a diverse group, with diverse problems, and the only real unifying trait amongst them is that they want to be treated as individuals.
Don’t go into a pitch assuming all they care about is their Instagram feed and pumpkin spice lattes. It will be easier to gain their trust and create a real connection by not talking down to them. Young adults are faced with economic uncertainty, a trained hand will be more than welcome.
Lower fees and minimum asset requirements
Since robo-advising platforms are automated, they can charge minimal amounts for their services – up to 75% less than what advisors charge. Young people are generally pretty suspicious when it comes to advisors and how they charge their fees. Put your pricing information up front, so that Millennials know what to expect.
Millennials don’t earn as much as your usual clients, so lower your fees for basic trading activities. You can make up the difference by charging higher rates for specialized services. You might also consider developing a formal program for individuals that might not meet your minimum asset requirement. Robo-advisors have very low minimums if any at all. For example, Wealthfront has a minimum of $500, whereas Betterment accounts have no minimum balance requirement.
Though you won’t make much money out of the gate, your earning potential will increase as they progress in their career and earn more money. In the face of disruptive technology, most only think of short term solutions. For continued success, it’s best to have a long-term growth strategy in place.
Update your technology
40% of investors preferred a blended approach to financial advice, while less than 10% preferred a fully-automated solution involving no human interaction at all.
Services offered by robo-advisors are usually based on algorithms that monitor clients’ portfolio performance and make buy or sell decisions based on key information, such as age, time horizon and risk tolerance. Most financial advisors already have rebalancing software that does passive investment in the same way. Informing prospects that you can do the same thing as robo-advisors, with the added benefit of an actual human monitoring its performance and specific advice for each client might just be compelling enough for them to sign on.
Even better would be to develop an online portal where clients can view their portfolio in real time, make small changes, or request changes from an advisor. How much control you give them is up to your discretion. This is more about adding some of the functionality of robo-advisors that clients like, without giving them total free reign.
Address issues of control
In a survey of U.S. investors, 48% identified as Validators, who want to participate in decision-making, and 28% identified as Self-Directeds, who like to perform all investing activities themselves. Robo-advisor platforms are therefore very attractive to these individuals.
You can address these desires by letting prospects know they can be as involved in the process as they want to be. By implementing an online portal, clients will satisfy their craving for control. And with up to date information available online, they won’t have to bother their advisor for performance updates.
Stress the consequences of DIY financial management
A lot of people interested in robo-advisor apps and services are those who are new to finance and want to explore without committing to a person. Put bluntly, these people don’t know what they’re doing. Taking a DIY approach to financial management carries risk for the uninitiated.
If you’re courting a potential client that isn’t sure if they want to make the jump, let them know what’s truly at stake if they put all of their trust in an app that runs on an algorithm instead of personal advice and bespoke services.
Be more visible online
Generation Y grew up with the internet, so whenever faced with a problem, their first choice of action is to search online for an answer. If young adults are starting to consider how to plan for the future, they’ll be looking to Google for answers. If you’re company isn’t actively creating content that’s geared towards these types of questions, you’re losing exposure to this key demographic.
Post blogs, create guides and videos, or post on personal finance forums. People get nervous when it comes to their money, so knowing that a potential advisor is a thought leader will do wonders to help ease their fears. You’ll be at the top of their shortlist when they finally decide to take the next step and employ a personal financial advisor. Just make sure you consult your company’s legal team to make sure everything you post aligns with compliance and electronic storage requirements.
In an age where financial services are fast becoming a commodity, it’s crucial that advisors be proactive and address this problem head on. Though the advent of robo-advisors might result in lower margins for advisors today, as long as they are able to effectively communicate with younger generations, they will be able to build a long-term and sustainable growth strategy.
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