FintekNews OpEd – How Robos May Evolve & How Wealth Managers Must Adjust

By Cindy Taylor, Publisher

November 1, 2016

We don’t have a crystal ball here at FintekNews World Headquarters, but we have been around the block a time or two.  Our team includes a 30+ year markets/trading veteran and a 20+ year media veteran, so we have seen a few cycles in our respective industries, and we feel that qualifies us with some life experience. 

Roboadvisors are a huge source of worry and confusion for our nation’s wealth managers.  We’ve spent time on quite a few of these sites, and we understand how the ease of their interfaces and the lower fee structures make them appealing to consumers.  After all, we are all about fintech.

At the same time, our audience is comprised primarily of wealth managers, and wealth managers make money from managing money, one way or the other, and we want them to continue to succeed.  So, to that end, we simply want to share some anecdotal stories from our respective backgrounds and some ideas as well.

Trading is, in our opinion, the original fintech.  The exchanges and trading systems have always been technically at the cutting edge.  There was a time when the exchanges were open outcry, and we all know where that has gone, although it’s been a progression.  If you’re still trading on the floors, you’re a rare exception these days and you’d better understand how to trade from online platforms, because your floors may go away, if they haven’t already.  Our CEO long ago adjusted to trading online, and now has adjusted his primary strategy significantly to adjust for market volatility and combat trading bots with a proprietary options collar strategy that can weather any flash crashes or other black swans the markets throw at him.  In this case, since he couldn’t beat them, he, well he did beat them by developing something that simply can’t be algorithmically whacked.  He’s a pretty smart guy.

Likewise, with media, we started when there was ONLY print.  Then along came the internet in the mid-90’s which was “value add” to print buys for quite some time, and later ditto with social media.  Now, print CAN BE the “value add” to digital and social buys.  At first, the pricing on the new digital alternatives was greatly compressed against print because its value was questionable and couldn’t be demonstrated, but as time evolved, the rates started raising as you could demonstrate your audience and their engagement. 

We think this is what will happen with robos.  They are here and they’re going to stay here.  The fee structure on these is, in our opinion, perhaps artificially low as the market rolls out, and many of the robos (not all but many!) do not allow for very much extensive customization.  For instance, you cannot buy individual stocks that you may love with many of the robos.  You have to buy from a basket, based on risk and their algorithms (which may or may not be great, how can you know?), or you may only be able to buy from a select number of individual stocks, not the entire market.  We also know that cost per customer acquisition is still quite high, and many are not even close to being profitable with their compressed fee structures.  Over time, there will no doubt be attrition.

What to do?  Set a plan, based on thoroughly understanding that your industry is going through a fundamental change, like it or not.  Find other ways to embrace technology in your practice and in your client communications.  We won’t make specific recommendations here, but we have written a number of pieces about this in the recent past, and we encourage you to set aside 15 minutes per day to research technology options available to your advisory and find other ways you can differentiate your client offerings, such as digging into interesting fintech investing opportunites such as P2P, digital currency hedging or crowdinvesting.  Of course you can find lots of information on all of those things here at FintekNews, and here’s a few recent articles to help you along that path.  Stay ahead or be dead!

Can Apps Beat Robos?
Simplifying New Account Set Ups for RIAs & B/Ds
Fintech for the New Advisor
Robos & the Scott-Bot Battle

The team at FintekNews is here for you!