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AK In The News: Why All Planning Firms Could Use a Robo-Advisor

My opinion piece on Robo-advisors was published in today’s Financial Advisor IQ (A Financial Times Service). My general assessment is that advisors and advisory firms should embrace the concept where it fits into their businesses, rather than fight the trend. Three potential fits include:

Assist with client segmentation. As many advisors grow their businesses, they face the issue of having too many clients — and they often have to grapple with the issue of what do to with smaller, less profitable clients. They also have to turn down prospective new clients who don’t meet their account minimums.

Advisors can use robo-advisor services as an alternative for clients or potential clients who don’t fit into their current business model. Rather than turning them away, advisors will be able to keep them.

As client assets grow over time, and these clients need more-sophisticated services, they can be migrated into the advisor’s core business. And at that point they become more-profitable clients. Or, if they are happy, they remain as robo-type clients — the advisor’s revenue from them might be smaller, but they are spending a lot of time or money on client service.

Attract family members of clients. Advisors often struggle to effectively attract the family members — typically children — of current clients. This is a serious setback, as developing such relationships is crucial to building a longer-term sustainable business. But a robo-advisor service component can mitigate this threat, as such systems allow these family members to become part of the firm even before they amass assets. As a result, these new clients will learn the basics of investing and be more apt to remain long-term clients.

Attract millennials. Similar to the matter above, as advisors grapple with the issue of how to service the newest generation of investors, they are offering them what the competition is offering — again without disrupting their current business model. Over time, as advisors attract more millennials through the robo-advisor model, they will learn more about them and their long-term needs and traits. Indeed, they will be better prepared to adjust their entire business model in the future if necessary.