The fine art of delivering data and reducing client friction-points
by Ken ThompsonMr. Thompson is Head of Shared Services, TD U.S. Wealth. Visit www.td.com.
The financial advice industry faced unprecedented disruption during the COVID-19 pandemic, forcing advisors to swiftly integrate digital solutions as in-person interactions largely paused.
Since then, the pace of digital adoption for advisory services has only accelerated. Financial institutions and investors continue to embrace automated processes that improve scale, efficiency, and reduce risk, giving clients greater freedom to make investing decisions independently of financial advisors.
The rise of automation has led increasing numbers of investors to adopt “robo-advisors” – online applications that provide fully automated access to investment advisory products and services. According to a 2023 survey by TD U.S. Wealth, more than half (53%) of all business owner respondents report that they used an automated investing platform in 2022 for their individual investing needs.
While many investors have embraced robo-advisors, the need for a relationship with a personal dedicated financial advisor remains. For example, the vast majority (82%) of the survey’s 724 respondents state that they work with a financial advisor, and 96% of those who work with an advisor report they are satisfied with their financial advisor’s performance.
As technology continues to play a greater role in the industry, financial advisors must learn how to leverage robo-advisors where appropriate and incorporate them into a wholistic advisory model that connects with the client’s goals and preferences.
How Robo-Advisors Can Benefit Clients
In recent years, online investing applications have become more accessible and easier to use, leading to a surge of new investors leveraging digital solutions to manage their money. As investors have become accustomed to this high-tech environment, many are turning to robo-advisors for a recommended portfolio that balances their goals and risk tolerance. Clients need not identify stocks that will be successful in the future, relying instead on a portfolio assembled for them that should be able to withstand economic cycles.
For younger, first-time investors, robo-advisors can be particularly appealing because they can be opened online through a laptop or phone with small account minimums, creating a cost-effective investment solution that allows them to contribute a fractional percentage of every paycheck. Additionally, working with a robo-advisor gives digitally savvy investors an opportunity to enter investing earlier and potentially grow their financial acumen.
Another reason why younger first-time investors may find robo-advisors compelling is that they may have relatively straightforward investing goals. The commonly understood needs of this group – which usually involve paying off debt due to recently exiting college, establishing a savings plan and a budget, and trying to save for a first larger purchase – mean they most likely will benefit from a robo-advisor rather than from an advisory account led by a dedicated financial advisor with higher minimums and advisory fees.
Beyond serving as an entry point for early investors, robo-advisors can complement investment portfolios of all generations and create a long-term solution for those who desire greater independence when investing. Regardless of segment, age and net worth, clients may have portions of their money they want to manage as part of a goal based advisory program.
For older clients who are already operating in a digital environment and are comfortable with it, a robo-advisory solution can offer an investment account for specific goals that do not require a dedicated financial advisor. For example, a high-net-worth couple can use a robo-account to save specifically for their upcoming vacation.
Since these clients already operate in the digital space for their banking and insurance, they can easily adapt to a robo-advisory model if they have confidence in their investing platform and the institution.
Implementing A Hybrid Model
Despite the benefits of robo-advisors for early-cycle investors, automated tools may not provide a long-term solution for individuals as they move through the multiple stages of their financial journey. Many clients may obtain the greatest benefit from a hybrid system – an advisory solution that combines the ease of robo-advisors with the knowledge and experience of financial professionals.
The goals and investment strategies of clients starting their financial journey are normally static and straightforward, but these aspirations change as customers grow their careers, raise families, buy homes, increase their income and plan for retirement. While a simple investment strategy may suffice for goal-based investments and those with a modest income, when investment goals and objectives become complex and clients grow their assets, they should engage investment advisory professionals to ensure they are adjusting their strategy to life events.
Additionally, the modern economy is defined by rapid technological change and disruption, and clients are likely to encounter market volatility that can lead them to question their initial strategy and disciplined investing approach. In stressful situations such as these, speaking with an experienced financial advisor can be the difference between staying the course and making a rash decision based on underlying market fears.
Today, some of the top financial institutions, including TD U.S. Wealth, offer robo-advisor platforms, which have a 100% robo-advisory option, as well as a “robo-investing plus” model that typically provides a client with additional services. While clients pay more for the “plus” option at TD U.S. Wealth, this plus model gives them the ability to speak with a centralized team of professional financial advisors if they have questions or are concerned about market volatility. Ultimately, clients using the plus option may find comfort in speaking to financial advisors with knowledge and experience and may be less inclined to let market volatility derail their long-term goals.
Creating A Seamless Experience Through Technology
Outside of a robo-investing platform, financial professionals must also leverage other technology to meet clients where they are and in the way they wish to interact. Although financial advisors often pride themselves on person-to-person interaction, customers are increasingly looking to communicate in ways that are convenient and accessible for them.
It’s important to remember that digital-first clients exist in every segment and age group, and financial advisors who fail to provide solutions that engage these clients risk losing them. For example, many clients may not wish to meet someone in person to perform basic functions such as sending money, transferring funds between accounts, or closing an account.
Ultimately, financial advisors must adapt to the preferences of their clients and provide them with options to act on their own. While this concept will continue to develop as technology progresses, this could involve giving clients a view of not just their immediate relationship with their financial advisor, but also other aspects of their financial picture like retail deposit, credit card, and lending account information.
This practice, known as account aggregation, allows clients to view their holistic financial picture at one time, determine how they’re using their money, and see how they’re meeting specific goals across their portfolio. From an advisor standpoint, aggregation can nudge the client to pay attention to areas that they might not focus on.
The financial products available today are increasingly bringing data together for financial advisors and eliminating friction points in the client experience. But to capture these benefits and stay up to date with emerging trends, financial advisors must become students of the industry.
In the same way financial professionals read periodicals and analyze the markets to help clients with financial planning, current financial advisors must read and digest the latest information on emerging technology and trends. This is essential to understand the leading edges and how these are changing the way clients interact with all providers, not just financial service providers.
Financial advisors must also be users of the technology they implement. Financial advisors who don’t adequately understand the tools their clients use will be unable to answer questions or provide guidance on how to maximize the benefits of the product.
Since the COVID-19 pandemic, many clients have shown they’re comfortable with a digital-first environment, and this trend will only continue over time. Today, technology touches the end-to-end process for clients and advisors alike, and financial professionals who do not adapt to meet clients where they are and eliminate friction points will fall behind their peers. While implementing a hybrid model that leverages the strengths of robo-solutions and in-person experiences is key to serving clients more effectively, advisors must also be aware of emerging trends to ensure they’re optimizing client experiences in this rapidly changing landscape.