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Why Financial Advisors Should Invite a Robo-Advisor to their Table

by | Dec 3, 2018 | Blog |

Whether you like them, hate them or are indifferent, robo-advisors are here to stay. Since Betterment made its debut a decade ago, there are now more than 200 robo-advisors with AUM projected to reach $2 trillion by 2020. Have no fear, robo-advisors will never be able to make a human connection with your clients or coach them out of making those erroneous emotionally-based financial decisions. They can, however, enhance your service offering, help you attract and cultivate future clients, and increase the longevity of your practice.

The benefits of robo-advisors are well known. They are low cost, easy to use, utilize advanced algorithms to build personalized, tax-efficient portfolios and are happy to work with those who have little in investable assets.

You, on the other hand, would likely prefer if your clients have at least $250,000 in investable assets or more. For this very reason, a robo-advisor can fit nicely into your practice; allowing you to leave the door open to clients you don’t have the human capital to serve, including younger clients positioned for greater wealth accumulation. In short, maximizing a robo-advisor allows you to help your future ideal client in some capacity at present. However, not every advisor is readily equipped to make a partnership with a robo-advisor profitable.

If you do not have a digital marketing strategy, an updated website, or are not frequently using social media, you are not ready to introduce a robo-advisor.

Robo-advisors are digital tools meaning they need to be marketed digitally. If you have a limited digital footprint, it’s essential to strengthen your online presence before you partner with a robo-advisor.  Without a commitment to a digital marketing plan, your new robo-advisor is not going to generate much traction. If you feel confident in your digital marketing capabilities, please continue reading.

Choosing which robo-advisor to partner with depends on your level of independence. Hybrid RIA and Pure RIA advisors have greater flexibility and more choice.

Captive agents and corporate advisors are restricted to their company’s or independent broker-dealer’s robo-advisor if they even have one. LPL Financial launched Guided Wealth Portfolios (GWP) in 2017, a robo-advisor created in partnership with BlackRock. GWP provides advisors with a custom landing page that promotes the advisor and robo-advisor partnership. Advisors set the pricing, which is recommended to be less than 0.50%

Fidelity, TD Ameritrade, and Charles Schwab have robo-advisor solutions with white label versions for financial advisors who custody with them. Fidelity uses Betterment’s technology while TD Ameritrade has created an API for its Veo platform that gives financial advisors access to Jemstep, Upside and Nest Egg Wealth, three robo-advisors who also custody with TD Ameritrade.

One thing is for sure, robo-advisors haven’t disrupted the financial services industry as initially anticipated; however, they offer a valuable service that is appealing to Gen-Xers, Millennials, and tech-savvy Boomers and should be embraced.

As it turns out, the robo-advisors also have a lot to gain from partnering with advisors too. Morningstar and Pitchbook took a deep dive into the robo-advisors’ progress in their June 2018 edition of the Financial Services Observer and concluded that their 2015 prediction that robo-advisors could not survive alone was correct.

Investors were more reluctant to give robo-advisors money, client acquisition and ongoing operating costs were higher than expected. The new business model for robo-advisors embraces the larger financial institutions, who in turn recognize the value of advisors to help market, coach and provide ongoing service to their clients.

If you are ready to pull up a chair to a robo-advisor, let us help you determine which solution aligns the best with your practice today, and in the future.

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