digital advice

Can DigitalPlus Advisors Topple the Robos?

There has been an endless stream of synonymous terms created to describe advisors who leverage technology to provide online advice.  Digital advisors, hybrid advisors, or technology-enhanced advisors have all been suggested. At the Money Management Institute’s Fall Solutions Conference held last month, Chicago-based management consulting firm A.T. Kearney coined a new term, the DigitalPlus advisor.

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Bracing for the Waves of Change

Whether or not the DigitalPlus label is going to stick, the industry will continue experiencing waves of change.  A.T. Kearney has created six helpful categories that define main change drivers:

  • Wave 1: Increased Regulations – DOL
  • Wave 2: Emergence of Digital Advice
  • Wave 3: Pricing Action by Players
  • Wave 4: Retiring Baby Boomers
  • Wave 5: Generational Wealth Transfer
  • Wave 6: Advisors Continue to go Independent

None of these waves are unknown and most have been pressuring the industry for the past few years already.  But due to the most recent factor, DOL, A.T. Kearney believes that firms will have to rethink and adjust efforts such as:

  • optimization of product and services strategies
  • people and talent strategies
  • mergers and acquisitions and partnerships

According to A.T. Kearney partner, Uday Singh, the DOL rule will wipe out $20 billion in revenue mainly from wirehouses and broker-dealers.  This will be due to a huge shift in assets towards a combination of RIAs, roboadvisors, retirement plan administrators and self-directed investors.  Their research predicts that approximately $2 trillion in assets will be put in motion due to the regulations.20 billion

(See Question of the Month: Ensuring DOL Compliance)

Is the Pure B2C Robo Model Dead?

The last two years have seen a lot of action when it comes to technology platforms and digital advice. Vanguard and Charles Schwab launched their digital offerings and promptly snapped up a solid share of the market. However, recent A.T. Kearney’s research has confirmed the sentiment shared by Michael Kitces earlier this year: pure Business-to-Consumer (B2C) roboadvisors not named Vanguard, Schwab or Betterment are on the decline.

Even as those three firms have been gobbling up AUM, overall investor interest in roboadvisors has dropped slightly from 50% in 2015 to 48% now, according to the A.T. Kearney 2016 Future of Advice study.  The study also expects that both the pure robo and the traditional models are expected to decline. On the other hand, DigitalPlus advisors appear to be positioned for growth.

This could mean that the digital advice wave has peaked. It would also seem to contradict their earlier predication that roboadvisors would manage over $2 trillion in assets by 2020. Even without this survey result, I believe that number to be extraordinarily high.

What is the Value of Investment Advice?

Another interesting takeaway from A.T. Kearney’s research was that a significant portion of investors are confused about the actual cost of advice.  30% of mass affluent investors believe that the advice they receive is free!

Combine that with the 2/3 of investors who know they are paying, but do not know how much and you have an interesting advice

On the flip side, those investors who do know how much they pay for advice appear to be rather price-sensitive since 72% said they would be willing to switch advisors for a discount on their fees. What does that say about the value message that investors are receiving?

Initially, I wondered whether the low loyalty factor was due to low customer engagement by advisors. Is this the crowd that never hears from their advisors except at annual review times? After I looked into the underlying study, I was surprised to find out that the numbers only looked marginally better for investors who are “fully engaged”.

What should advisors do as they consider the impact of this trend on their own practices? It seems the answer is at the intersection of price transparency and comprehensive value-added services. Advisors should expect more explicit price competition, so developing a strategy to address the trend is wise.ey-study-levels-of-wealth-management-needs

As the graphic from the 2015 Ernst & Young study demonstrates, only a small portion of overall wealth advice can be fully automated given today’s technology. By finding a suitable combination of add-on services, such as estate planning, insurance advice and retirement planning, advisors can appeal to their market and create compelling reasons for clients to stay.

Investors Are On The Move. Are You?

Another seemingly contradictory survey result was that most advised investors, the same ones who are ready to switch advisors of they could save a few bucks, also express a high level of satisfaction with their current advisor.

That finding is particularly interesting when combined with the relatively high price sensitivity. One wonders whether the financial advice industry is heading the way of banks, with upcoming convergence in terms of service quality and returns. Will geographic convenience and quality of customer experience determine the winners?

22% of households with $500,000 to $1,000,000 in investable assets are likely to switch advisors sometime over the next five years.

— A.T. Kearney

If anything, these statistics confirm the stakes that are involved. This is an interesting combination of an opportunity and a threat. Will an advisor’s practice be able to retain the right clients and attract new ones to offset inevitable attrition? My advice is to assume that some clients will leave, and to conduct a stress-test of your book to identify service gaps. If you know your vulnerability, you can address it, strategically and proactively.

25-30% of baby boomers will move to an advisor in order to get financial planning services.

— A.T. Kearney

Given the sad state of retirement preparedness overall, this finding offers some hope.

Is DigitalPlus the Future of Digital Advice?

It seems that success will be defined by the firms that leverage technology and create an outstanding customer experience. With the margins closing in, the DOL regulations looming, and the markets bracing for the US election, the next few months will be a nail-biter. “May you live in interesting times” is an old Chinese blessing and curse that seems quite relevant as we close out 2016.

2 Responses

  1. Great piece Craig! While the study predicts the decline of pure robo-advisors and the rise of digital plus, only time will tell how the public actually behaves. As you note, most investors do not know what they pay in advisory fees. When they realize this cost, they may prefer pure robo versus a ‘plus’ component. The more savvy the public becomes, the more the ‘plus’ component needs to add real value.

    1. “An educated consumer is our best customer.” — Sy Syms, former CEO, SYMS Menswear Stores



The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at