The role of the investment advisor is evolving quickly. Automated applications have become the go-to tool for many investors. These apps can help with rebalancing a portfolio, determining asset allocation, and recommending tax-loss harvesting. Ironically, the advanced algorithms and efficiency of these tools have not threatened the role of the advisor; they have strengthened it. The reason: while hard numbers can certainly facilitate investment decisions, they can’t address behaviors like panic selling, buying based on greed, early profit-taking based on fear, and stubbornness that causes refusal to buy a stock that drops in price, even though it is a value play.
The human factor is more important than ever in investment advising. This is where the new breed comes in. The Cyborg Advisor.
What is a Cyborg Advisor?
A Cyborg Advisor is a technology-aided financial professional. This advisor will use robo-advice (recommendations from apps), and offer added value by counseling a client in-person or over the phone. The advice becomes a combination of hard data from applications and sensitive guidance that takes the client’s personal needs and tastes into account.
Elon Musk has predicted that human beings must join with computers or else become obsolete. That doesn’t mean you have to plug your computer into your brain just yet, but it does mean you need to accept the speed and accuracy of computers as part of your practice as a financial advisor.
Trying to calculate faster than even the simplest calculator is fruitless, and the accuracy that investing programs provide is far superior to the types of analysis an advisor may perform. Savvy advisors are welcoming the new technology, and instead of worrying that humans will be replaced, they are making themselves indispensable to their clients.
The question isn’t whether you will become a cyborg investor; it is how to become one.
6 Steps to Becoming a Cyborg Advisor
1. Set hours to talk to clients
The days of your being unavailable to answer clients’ questions need to come to an end. If your customers are increasingly finding robo-advising helpful, they may leave you unless you can demonstrate that you are adding value. Part of that value is being available. Schedule meetings and phone calls with clients and stick to that schedule. Make room to call a client just to check in. Even if you don’t have any new advice, you want, and need, to know if your customer has any new issues or questions.
Call your nervous clients more frequently than usual. There is nothing more frightening for some investors than watching the value of their stocks go down while feeling like their advisors either don’t care or are not paying attention. Think of some hard facts to help nervous clients stabilize their fears, and call them to tell them your thoughts on how the markets are behaving.
Even calm clients need some hand-holding, too. Let them know you are watching their portfolios. This kind of personalized service is something no robo-advisor can provide. Even if you get your comforting information from a software program, the fact that you took the time to call lets your clients know you are up-to-date on the latest investing intelligence, and that you are attuned to emotional intelligence.
2. Make decisions about offering your own robo-advice platform.
Instead of fighting the robo-advice trend, join it. Dismissing it will be at your own peril as clients evolve with the trend toward accepting it and you don’t.
You can offer your own application on your website. And the good news is that you may not have to build one from scratch. Companies such as Betterment are considering offering their robo-advice tool to advisors. In addition, they will allow you to put your branding on it.
This could be an opportunity for a new income stream for you. Consider ways that you may be able to charge for your online service to certain types of clients. Or, if it makes better tactical sense for your practice, you could consider it a loss leader that produces tangible added value. That is, you could offer free access to your application as a means of strengthening client retention and drawing in new clients amid a competitive environment.
Or a hybrid approach could entail offering a free trial for your online service. Then, based on positive user experiences, you can make a well-informed personal pitch to clients (and prospective clients) for your online service coupled with your personal investment advice.
3. Identify applications you want for advising yourself.
Large personal investment firms are using robo-advisors. They don’t use the automation for their clients; they use it for their advisors. New software is helping financial advisors, bankers, insurance agents and other financial professionals in making decisions that are timely and accurate.
In other words, robo-advice isn’t only for clients. You can use it internally, too. Be transparent with your clientele about the fact that you use one or more applications to check their asset distribution, retirement funds progress, or tax-loss harvesting, to give some examples. Emphasize that you are staying on top of the client’s particular portfolio developments. After all, even if a client has an app, that doesn’t mean that he or she is using it often enough. Be the person who is up to date even when the client is not.
Also, don’t focus exclusively on apps for investing. There are several you should consider for running your practice. You can find applications that will organize your business cards, track the amount of time you spend on each client, send invoices electronically and notify you of important upcoming dates. Other apps keep you up to date on financial news and trends.
4. Learn how to blend behavioral and robo-advice.
It’s important to avoid the appearance of trying to compete with any apps the client may be considering or already have. Your approach should be blended to retain the usefulness of the app as a tool enhanced by your unique insights and perspectives. For every piece of robo-advice you discuss, add a personal observation or clarification. For example, when considering the rebalancing of a portfolio, mention the client’s stated goals and discuss whether those goals need to be reconsidered. Similarly, if the robo-advice eliminates an investment because of the client’s risk profile, provide solid reasoning as to why you would recommend taking on risk that may be outside of the client’s known risk tolerance.
The heart of the matter for the new cyborg advisor is that applications can’t change behavior, but you can. Address behaviors, such as selling out of fear or buying based on greed, in ways no robo-advisor ever will. Become an investing coach for your clients. Tailor your advice to your customers’ personalities and individual circumstances. You will be adding value to your relationship with them.
Again, feel free to utilize apps for the information you gather to make decisions, but don’t forget the critical human element. That’s what a cyborg advisor does.
5. Emphasize comprehensive financial planning.
Your clients don’t just invest in stocks or bonds. There are several financial decisions robo-advisors don’t deal with. For instance, you can advise your clients on which account to pull the money from for a down payment on a house. In fact, you can discuss how large a house they need based on plans to raise a family or retire. These are personal and subjective considerations only a human advisor can discuss.
Think about alternative investments. Discuss the advantages of rental property vs. REITs. Are there any private equity opportunities your client should consider? How about hedge funds?
Create a cash flow management plan for clients. Robo-advisers can’t do this very well. You need to know the client’s needs and tastes in order to address cash-flow issues and goals.
A robo-advisor won’t tell your clients to wait to invest until they have six months to a year of living expenses stashed away. An app can’t force your client to stick to their dollar-cost-averaging investment plan. These and other tasks require the human touch. Remember, becoming a cyborg advisor isn’t just about becoming more technologically savvy; it is about becoming more human too.
Point out that you are there to hold the client responsible for actions. In other words, just because a robo-advisor says to rebalance a portfolio, that doesn’t mean it has been done. The client must work with you to make the specific changes necessary.
In addition, you must recognize that robo-advisers use the client’s self-assessment to evaluate a portfolio. It’s common for people to be inaccurate when answering questions for a robo-adviser. They may overestimate or underestimate their risk tolerance and overstate their ability to stick to an investment plan. You can understand an individual’s concerns, liabilities and tax issues much more precisely as a mentor.
Be there for your clients when they start to make irrational decisions, and you will be a true cyborg advisor who supports a personal understanding of the client making the decisions with accurate technology.
Discuss philanthropic interests. Robo-advisors can’t tell a client when to give to charities and how much to give. This kind of decision needs to be a person-to-person discussion between you and the client. Talking about values, legacies, and helping others is not something an application can do.
Make it clear when you or the client decide to go against the robo-advisor’s advice. When it comes to all the human reasons there are to make investment decisions, algorithms can’t make choices, they can only suggest possibilities. By pointing out those moments where you and the client decide to deviate from the robo-advisor’s suggestions, you emphasize the value of your role as an advisor.
Computer-aided suggestions are by necessity based on what has happened in the past. By having you on their team, your clients can take advantage of your anticipation and understanding of new and unexpected developments.
6. Adjust your fees to reflect your new approach.
It may be time to raise your fees. Because you are offering a much more comprehensive approach as a cyborg advisor, you can justify charging more, or at least charging differently. Advisors are experimenting with how to assess fees. Charging a fee for each trade can become tedious, and millennials, in particular, do not like that approach. You may consider a retainer approach, and of course, there is the traditional method of charging a percentage of assets under management.
Consider combining fee approaches. For example, you could charge a membership fee for the use of your online robo-advice, plus a fee for your personal attention to the account. Don’t look at inexpensive apps as your competition; look for opportunities to improve your value to your clients by mastering technology.
If you decide to lower your fees to be more competitive, make up the difference by adding new clients. Technology will cut down on your analysis time, so you should have more time for personal contact with clients. Use your lower fees as a marketing tool. Let potential customers know you are current on the latest technology and that you provide customized service.
The Bottom Line
The day is near when the only advisors still working will be cyborg advisors. Collaborating with technology is a necessity, not an option. As you build your practice, take advantage of as many learning opportunities as possible regarding technology in the financial professions. While these new applications are often called “disruptors,” they can actually be enhancers if you remain open-minded and creative in the way you use them to support your decision-making processes.
By the way, not every application that comes out has staying power. You don’t need to try to use everything you come across. Identify your essential tasks and competencies, and find software that can help you achieve what you want to do. You may have to go through some trial and error. If something is not working, you can rest assured that the competition has come out with something better.
Once you accept your role as a cyborg advisor, you will actually have more time to do what you like doing: helping clients make money. Look at technology as a tool instead of a competitor, and at the same time brush up on your bedside manner. Warm up your practice while beefing up your technology.
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