Integrating Human and Machine Advice: Current State and Future Requirements

Several recent articles and pieces of news pertinent to robos and advisors create an interesting mosaic of the current state of human and machine advice:

The image created by these items depicts the struggles in the advisory business to settle on a clear, promising strategy for integrating advice channels.

The Limits of Disruption

When robos appeared on the scene several years ago, they were heralded as the future of wealth management, a democratizing blow for the industry, and a mortal assault on traditional financial advice. Any who have seen the hype machine movie before won’t be surprised that none of those things turned out to be true. In the real world, the biggest “robos” in terms of assets are those of Vanguard and Schwab that operate as hybrids while the “pure play” B2C robos have struggled to accumulate assets and breakeven on customer acquisition costs.

The reason for this discrepancy between reality and hype is simple: Irrational as it may sometimes be, most people want humans involved in their financial planning. A 2016 survey conducted by EMI and Boston Research Technologies showed not only that most want human involvement, but also that those who were more open to algorithm-driven investing didn’t neatly map to pre-conceived demographic categories. The bottom line is that you can’t will customers and prospects into following your vision for a service offering. Moreover, making assumptions about their behavior based on intuition and truism doesn’t create a strong foundation for success.

Changing Perspectives

The truth is that the majority of customers want a hybrid model. Many of the leading wealth managers understand this and have implemented or will implement various forms of hybrid offerings. In fact, as I mentioned earlier, the largest robos are actually those launched by existing wealth managers Vanguard and Schwab.

But any business heading down the hybrid path needs to recognize that their old models of and assumptions about client management and messaging will likely need to change. Specifically:

  • If portfolio management is outsourced to machines, it becomes a commodity and value must be defined in terms of relationships and communication—an idea that has been around for some time but which has not gained universal acceptance because it is hard to execute.
  • If you are advocating for clients to use your automated platform, you need to recognize that you are now responsible for their adoption of and satisfaction with the investment management software. Firms and their advisors need to be ready to assist clients onboard, answer their questions, and help them realize the full value of the software.
  • Pushing the wrong clients towards a robo solution is a lose-lose situation that will cost time and assets. Firms and their advisors need to have ways of identifying where clients are likely to fall on the spectrum of interest in and comfort with automated portfolio management, recognizing that age and net worth will likely not be great proxies.

Raising the SaaS Onboarding Bar for Niche Segments: RIAs and Software Frustrations

According to a recent survey of RIAs by Trust Company of America and TechValidate, advisors are not satisfied with the value they receive from their software. Almost half said that they couldn’t use it to its full capacity and more than a third complained that it couldn’t be customized to meet their needs. This data highlights the fact that even if you believe you have designed a product to target a specific market segment, there is no less of a need to properly set expectations in the sales process and invest in engaging and onboarding customers.

For the advisor market—especially RIAs, who may not have much of a technical staff to support them—the profile of the user makes this need particularly acute. Smart, used to moving quickly and strapped for time, these customers will have little patience for inefficiency and delays in going live and in finding out they were given misleading promises in the sales process. The actions and communications pre- and immediately post-sale will either put these customers on a positive trajectory for success and strong lifetime value or on a path to dissatisfaction.

In our experience, the keys to reaching and influencing RIAs are:

  • Demonstrate an understanding of them and their business.
  • Respect the fact that any time not spent working with existing clients or finding new ones is time wasted.
  • Communicate in plain language and facts, not marketing-speak and fluff.

SaaS businesses, obviously including those targeting RIAs and other niche customer groups, need to ensure customer success to maximize the retention and upsell opportunities that are necessary to turn a profit on acquisition. But like any revenue generation opportunity, this requires investment—in time, personnel, and money. In a niche segment, it doesn’t become easier to satisfy, but rather harder as the bar gets higher for the knowledge and experience necessary to “talk the talk” and “walk the walk”.