Archive for September, 2015

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

Thursday, September 17th, 2015

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.

If You Thought August Was Bad …

Thursday, September 3rd, 2015

August was a rough one for stock market investors – no doubt. This should not have come as a great surprise, however, as August is usually volatile, with many traders on vacation and volume typically very low. And this year the economic slowdown in China and concerns over when the Fed will tighten added to the overall level of anxiety and uncertainty.

Hopefully, you have already communicated to your clients the value of patience and of not exiting the market in a panic. But your job is not done. September and October are usually bumpy months in the market as well; witness what has happened this week already.

If this week and history are any indication, clients are going to need to be reminded again (and perhaps again) of the need to remain patient and focused on their long-term objectives.

But make no mistake – your job is not to get caught up in the turmoil and to commiserate with clients and help them feel sorry for themselves. Your job is firmly hold their hand (at least figuratively), be somewhat sympathetic, but more importantly be the voice of reason and rationality. Your job is also to educate, and to reinforce the fundamentals of the market that you have instilled in them.

Here is one of the best charts that I have seen to keep clients focused on the long-term. Use it, and other similar materials to calm clients and demonstrate your value added to them. This more than anything will prevent them from doing the wrong thing, and ensure that they remain clients for the long-term.