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How Robo Advice is Moving Financial Advisors to Become Life Coaches

Jeremi Karnell
Feb 16, 2017

It is no secret that the world of investment, and investors, has been changing rapidly. On the investment side of things, the managed mutual funds and full-service brokerage firms that once ruled the day have given way to exchange traded funds, index funds and online brokerages offering trades for less than $10 each. The investor side has changed nearly as much, with modern financial planning and wealth management clients demanding higher levels of service, greater transparency and additional tools to make smart decisions and manage their portfolios.

To understand just how significantly the investment field has shifted, you need to look no further than the Internet and its impact. Where Blockbuster Video was once in charge, now there is Netflix and its endless streaming services. Amazon.com has pushed the corner bookstore to the brink of extinction, and eBay has turned millions of average Americans into online entrepreneurs.

That shift has been just as significant in the financial world, with investors looking for advice and guidance in more places than ever before. Smart financial planning and wealth management firms have responded in a big way, incorporating the latest in FinTech into their operations in an attempt to improve client service and build their businesses.

This FinTech has taken many forms, from tools like Truelytics to help business owners optimize their practices and compliance aids like RegEd, to name just a few. Practice owners can also use services like WealthBox to communicate more efficiently with their clients and provide their customers with portfolio management tools like eMoney Advisor.

The rise of robo advice is yet another opportunity for the owners of wealth management and financial planning practices. The move toward robo advice has been both rapid and comprehensive, covering everything from 401(k) plan optimization to the management of college funds and the selection of mutual funds. In many ways, the shift from traditional investment advice to robo advice has echoed the move from old-style managed mutual funds to exchange-traded funds and index funds. Many of the advantages, from lower costs to better returns, are the same, and the early success of this approach has encouraged more and more clients to get onboard the robo train.

This move toward robo advice has created both challenges and opportunities for financial industry professionals. From individual brokers and independent financial advisors to employees of large brokerage firms and wealth management companies, the shift to robo advice has changed the playing field, and it looks increasingly likely that those changes will be permanent.

The fact that financial planning clients are increasingly taking the robo advice approach has created enormous challenges for financial professionals who still do things in the old way. Financial advisors and wealth managers who rely on stock sale commissions and transaction fees may find themselves increasingly shut out, with lower per-client incomes and possibly a shrinking client base as well.

There is little doubt that a growing number of customers now view financial advice as just another service, and the amount they are willing to pay for that service is increasingly limited. Investors who have access to a vast universe of low-cost index funds will probably be less inclined to seek out higher-cost managed funds. Investors with access to advanced stock screening tools may be less likely to seek out, and pay for, advice on individual stock investing. They can just log on to their computers, fire up their favorite stock screener and make their investment decisions.

So where does that leave the financial advisor and other industry professionals? Do they simply close up shop and let their clients fend for themselves? Do they abandon their practices and let the robots take over investment advice? The answer is a resounding no.

Robo advice may have changed the investment landscape, but that does not mean that the role of the financial advisor or wealth manager is going away. As long as there are workers saving for retirement and parents getting their kids ready for college, there will always be a need for sound financial advice. The nature of that advice and the delivery systems used to provide it may be changing, but the need is as real as ever.

In the current climate of robo advice, the role of the financial advisor or wealth manager is closer to that of a life coach than the stock broker of old. Clients can log on to their computers and get a list of dividend stocks with yields more than 6%, or a list of index mutual funds and ETFs with expense ratios less than .25%. What they cannot do with their computers is put it all in perspective.

Even the savviest computer and more advanced artificial intelligence cannot provide all the advice and guidance a client needs to run their life and make the most of their investments. That means there are still plenty of opportunities for practice owners and lots of new and creative ways for them to serve their clients.

Life coaches provide valuable services to men and women from all walks of life, and many of those same services are directly applicable to the financial world. Instead of spending time screening stocks and choosing passive investments, the owner of a wealth management practice may help their clients map out a new plan for each new stage of their life. From helping new college graduates maximize their earning power to assisting young parents with their college funds to handling the transition from employee to retiree, these life coaching services are invaluable.

The world of finance is changing rapidly, and the only thing certain is that more changes will be coming in the future. If you have been in the financial industry for some time, you have seen these changes come and go, and you have watched how the business, and your practice, has evolved to meet the new challenges. Keeping a close eye on those changes and preparing for them is what separates the most successful financial advisors and wealth managers from all the rest. The move to robo advice is here - how you handle it is what will make all the difference.

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