How to Succeed Against Robo-Advisors: Serve the Human

Blog Post
September 20, 2018

When looking at the financial technology (fintech) landscape, it’s easy to get lost in all the latest platforms and apps that seem to come onto the scene literally every day—from simple payment apps to complex robo-advisors that use algorithms to invest client dollars and automatically adjust based on market conditions.

To quantify this, from 2016 to 2017 there was a 28% turnover on the KPMG FinTech 50 list. That's a lot of change—and they’re only listing 50 companies. Is keeping track of and keeping up with all of these perceived competitors really a good use of resources for more traditional financial services brands?

While financial services marketers shouldn’t bury their heads in the sand and ignore new technologies, the focus shouldn’t be squarely on competitors—it should be on the customers.

This isn’t going to be another article about how banks and investment firms just need to invite their customers in to have a cup of coffee and talk over their financial goals.

In fact, quite the opposite. If you think a cup of coffee is going to win the day, I have news for you: 71% of millennials would rather go to the dentist than hear what a banker has to say. Thanks for the offer, but I’ll skip the coffee.

71% of millennials would rather go to the dentist than hear what a banker has to say.

It’s time to refocus on the humans we call customers— specifically, the jobs these humans are trying to get done. What do I mean by that? The Jobs-to-be-Done framework has been pioneered by Tony Ulwick, founder and CEO of Strategyn. It’s the idea that consumers are buying a product for the outcome it produces or the job it helps them complete. For instance, not many people really want to own a car. Most of the time, their job is to make a trip from point A to point B in a convenient and affordable way (hence why ridesharing is so popular).

When thinking about your response to fintech threats, you need to first understand why humans are using these new technology-based offerings—and also why they aren’t using them. In other words, you need to look at the jobs that clients can and can’t get done when using robo-advisors.

Make it easy for me.

Based on research by Mintel and Lightspeed, there are three main reasons investors turn to robo-advisors: convenience, speed and cost. The process of opening an online account and investing money is much easier with robo-advisors, and clients get all that at a fraction of what they pay for full-service firms.

What’s the takeaway? It’s not a matter of having to add more value to this process. It’s a matter of making it as simple as possible.

I’m surprised how many full-service firms still require that clients move money only through an advisor and don’t provide 24/7 access to account information. They do this under the guise of adding value by giving clients a chance to talk to a live advisor. Whatever you want to call it, it’s a hurdle between clients and their money. If your firm does not provide 24/7 online access to account information and automated funds transfer, then that’s a great place to start making some improvements.

Help me reach my financial goals.

Every robo-advisor on the market was launched during the United States' current extended bull market run, so it will be interesting to see how they perform when things get choppy. Nonetheless, most have shown strong returns over the past couple of years. Robo-advisors make a compelling argument for providing a return that outperforms the market and most actively managed funds. They boost their performance because they can follow the same formulas as an indexed fund, while also automating tax-loss harvesting and charging 50% less in fees.

All of this adds up to both solid performance figures and happy clients.

Help me make good financial decisions.

Do you know which consumer segment craves financial advice more than any other? It’s the same segment that we all think is most likely to use a robo-advisor. You guessed it: the infamous millennial cohort.

In a 2017 report published by Mintel and Lightspeed, millennials were 35% more likely than the average consumers to seek financial advice. Even the self-directed among them are seeking advice (my mantra has always been, “DIY investors are never 100% DIY”). Who can provide them with this advice? In the same study by Mintel and Lightspeed, they found that investors trusted humans over robo-advisors by a ratio of 6:1.

Be generous and generate trust.

Now that you know where investors want humans to help them, you need to figure out how and when to get help to them.

When we look at ways that consumers are seeking and getting financial advice, we see a lot of activity on social channels. We're not talking about traditional social channels like Facebook and Twitter, but rather forums like Reddit and Quora. Consumers are asking questions and seeking advice to help them make better decisions. They look for others who have already traveled the path and have insights to share.

Why in the world would they use an open online forum for this kind of advice?

People will choose trust over accuracy. If they think you’re trying to sell them something, they will shut you down in a heartbeat. Follow Seth Godin’s advice and “be generous.” Looking across the landscape of financial services providers, we see firms like Morgan Stanley, Wells Fargo and Charles Schwab investing heavily in market insight and guidance that they readily share with clients and prospects for free. This type of generosity has helped these firms maintain and also gain ground in the battle for market share.

People will choose trust over accuracy. If they think you’re trying to sell them something, they will shut you down in a heartbeat.

Consumers also demand insight on their terms. We live in a world where we can know the price of gold in China by simply asking Alexa. With that as the standard for speed and convenience, you need to find ways to make sure you can provide insight to your clients before they need it. If Alexa can do it in real time, then you need to get ahead of it. That means you’ll need deep analysis of your clients’ goals, propensity for risk and portfolio performance. Then you can use this information to provide them with insights that help them make decisions even before they ask the questions. That takes a commitment to analyzing customer data.

No doubt about it, it's a tough battle to be fought against robo-advisors and other fintech disruptors. Some in the media have even predicted the demise of full-service financial advisors. But if you focus on the client instead of the competition and take steps to provide insight and advice before the client needs it, you can continue to be the trusted advisor your clients want and need.

You might also want to check out The Path to Virtual Advisors Begins with Getting to Know Your Customers.