evaluating robo-advisors from the hbs perspective€¦ · • advisor charges 1.00% of assets...
TRANSCRIPT
EVALUATING ROBO-ADVISORS
FROM THE HBS PERSPECTIVE
Michael Lonier
the investment advisor at work
• client fills out ‘risk tolerance’ questionnaire
• advisor uses software to categorize client as conservative, c/m,
moderate, m/a, or aggressive
• advisor uses software to overlay corresponding model allocation on
client’s current accounts
• advisor shows client software results showing improved expected risk-
adjusted results from model allocation vs. client’s current allocation
• advisor charges 1.00% of assets annually for tuning up and managing
the client’s portfolio
client is happy
(except for the fee)
the robo advisor at work
• client creates account on website, fills out profile
• web app categorizes client as conservative, c/m, moderate, m/a, or
aggressive
• web app overlays corresponding model allocation on client’s current
accounts
• web app shows improved expected risk-adjusted results from model
allocation vs. client’s current allocation
• web app charges .40% of assets annually for tuning up and managing
the client’s portfolio
client is happy
(especially about the fee)
the client received, in essence,
the same service,
has the same portfolio,
will get the same returns
(before fees)
and paid 60% less
disintermediation
when was the last time
you used a travel agent
to book a flight or a room?
disintermediation is not
about web bots
or automation
it’s not even about
service differentiation
or “gama”
(well, maybe a little bit, but probably less than you think)
(or hope)
It’s about
driving the cost
out of service delivery
When was the last time
you got a cold call
from a broker with a hot tip?
financial planning
account aggregation
asset allocation
asset management
retirement income
direct to
client
advisor
managed
Betterment.com
UpsideAdvisor.com
GuideFinancial.com
JemStep.com
PersonalCapital.com
SigFig.com
Wealthfront.com FutureAdvisor.com Schwab.com?
LearnVest.com
Vanguard.com
how does this change
things for advisors?
the prospects for an advisor
who pushes the buttons
on a financial planning
software package are dimming
there is a danger that a
generation of new clients may
only learn the orthodoxy of
investment-based wealth management
sales & marketing
asset management
professional services
core components of the
old line advisory business
sales &
marketing
asset management
professional services
(sometimes it looked more like this)
sales & marketing
application
services
professional services
(asset management)
the web-enabled advisory business
looks more like this
sales & marketing
application
services
professional services
and more precisely, like this
• client portal
• budgeting/financial
planning
• account aggregation
• personalization
• secure messaging
• document management
• asset allocation
• portfolio management
• asset management
• retirement planning
{
what is the core
competency of the
advisory firm of the future?
smarter portfolios?
better tax advice?
savvy behavioral coaching skills?
slicker social media salesmanship
more sincere empathy?
managing services, not money,
focused on high usability &
a high quality user experience
with strong financial and
retirement planning overlays
current state of automated
retirement planning is
not well supported by web services,
and is mostly based on
holding risky investments and
withdrawal probabilities
retirement planning gap:
none of the current services
provide the balance sheet view
of goals and risk management via an
upside/floor/longevity/reserves
retirement policy allocation
the automated factory will be full
of machines,
a man, and a dog
the man is there to feed the dog
the dog is there to keep
the man from messing
with the machines
this is not about a man, a dog, and
defeating the invasion of the
web-advisors,
it’s about creating the web-based
advisory business of the future
that serves our clients
exactly where they are
at every service level
those who can do that
won’t need a dog to
protect their turf
