The UBERization of Financial Advice: It’s Time to Integrate or Stagnate

Published by Craig Iskowitz, CEO and Founder of Ezra Group, LLC
February 22nd, 2016

Uber_1“When you come to a fork in the road, take it.” – Yogi Berra

Robo-advisors aren’t just here to stay—they are here to take over and disrupt the traditional business model for investment advisory firms.

Digital advice platforms are quickly becoming ubiquitous. Financial advisors no longer face a choice of whether to go the robo-route—adopting and incorporating a digital platform is now essential for competing for clients, many of whom are becoming very comfortable with online financial transactions and virtual business relationships.

Just as UBER commoditized the services of cab drivers, robo-advisors threaten to do the same for investment advisors. Many advisors may find themselves in the same position as UBER drivers: independent in name, but subject to the whims of the digital platform’s fee structure.

Those advisors who can integrate digital advice into their business models and expand the value of the services they provide to clients will be in a better position to succeed as the investment advice business evolves.

The Genie Is Out Of The Bottle

Why do many financial industry experts believe robo-advice is no passing fad? Because finance is a numbers-based business, you just have to look at recent robo-advisor results to see where this trend is heading:

That’s an astonishing growth rate for a short five-year period. After the start-ups like Wealthfront and Betterment shook the industry with their business-to-consumer (B2C) robos, the heavyweights pushed into the market, either by building their own platform (Vanguard, Schwab) or buying up existing robo-advisors (BlackRock’s purchase of FutureAdvisor).

Uber_2

B2B robo-platforms open the door for advisors to roll out their own digital solutions for clients.

It’s now easier than ever to incorporate digital advice into a traditional advisory practice. Every major custodian now has a robo-technology platform as an offering alongside their core services. The next wave is now sweeping the industry, focusing on the business-to-business (B2B) model—see Invesco’s recently announced acquisition of Jemstep. Expect more second-tier firms to follow this trend in order to bring their own solution to advisors in the hopes of winning business and client assets.

For advisors, the risk is not in being left behind—that fate will only come those advisors who choose not to go down the robo-path and try to gather assets without the advantage of technology. Instead, the proliferation of robo-advice platforms will eventually commoditize services like asset allocation, portfolio management and risk mitigation.

Advisors are vulnerable to the robo-advice platform they use. The real risk they face is in becoming UBER drivers for their clients’ financial plans—offering a basic service to help clients get from where they are to where they want to be, but locked into a “race to the bottom” fee structure that will constrain practice growth.

Finding Success In The All Digital Age

So what are the next steps for an advisor who wants to build a successful practice and enjoy a lucrative career? The first step is to embrace the digital advice model and seek out a platform or technology that integrates well with their current practice.

A standalone advice program may not offer an adequate solution for an advisor looking to grow his or her book of business. Running two databases—one for existing clients in the traditional model and another for digital model—invites complications and inefficiencies. A platform that is holistic or can integrate easily with current tools used by the advisor will generally offer a better solution in the long run.

The second step is for advisors to broaden the scope of the services they provide, beyond the traditional investment

Integrating technology and client needs improves the experience, like this trip cam for UBER passengers

Integrating technology and client needs improves the experience, like this trip cam for UBER passengers

and portfolio management services that robo-advisor platforms can do better, faster and cheaper. This is where the interest in goals-based planning is coming from, as advisors seek to help clients develop financial plans that support the goals they want to accomplish.

Advisors can also look to add value by providing guidance on personal financial planning (e.g., budgeting, borrowing, charitable giving, etc.) or personal capital planning (e.g., career mapping, salary comparisons, benefits planning). Another avenue to explore is to get more specialized in the financial planning advice provided—into areas such as wealth transfer, retirement income, or health care cost planning.

Take The Fork In The Road

Advisors have a decision to make in the near future: Integrate robo-advice into their practice, or stay on the traditional path. It’s really not much of a choice—digital platforms are commoditizing the value of investment advice and reducing the costs for consumers, so the traditional path is likely to lead to a dead end.

When advisors come to this fork in the road, they should take it. Choosing to roll out a digital advice platform that is integrated with their practice should be a no-brainer. Expanding their services to provide the type of advice clients really want can’t be coded in an algorithm. Advisors who ignore this warning may soon find themselves in company with UBER drivers, with their earning capacity dictated by the low-cost demands of the robo-platform.

About the Author: Craig Iskowitz is CEO and founder of Ezra Group, LLC, located in East Brunswick, NJ. Ezra Group is a management consulting firm providing advice to the financial services industry on business and technology strategy, software development, and marketing. Craig has over 20 years of experience in wealth management, retail and institutional brokerage, market data and front and middle office operations. He previously worked for ADP Brokerage Services (now Broadridge Financial) for almost 10 years before becoming a consultant. His clients include many Fortune 500 firms such as The Bank of New York, Fiserv, Standard & Poor’s, and J.P. Morgan Chase. Craig is also the editor and publisher of the Wealth Management Today blog (www.wmtoday.com), which focuses on news and information for the wealth management industry with focus on fee-based advisory platforms. Craig is also available to speak on wealth management trends, participate in industry panels, or present one of his industry classes such as, Managed Accounts 101. Craig can be reached at craig@ezragroupllc.com

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