Fintech is going to kill Private Wealth Management jobs?

So it has been clear to me that algorithms will eventually be capable of doing everything that a traditional wealth manager is. Given this trend, I, rising junior, am a bit worried about being able to even have a job in the industry, and am even considering starting a robo-advisory as a method of making myself a manager. I would love a career helping people manage their wealth, but I feel as though the position will soon be obsolete. So I would love some answers to my questions.

Questions:

Is there a role for humans in the future of investment management besides sales and client relations?

When will robo's be able to attack the traditional industry HNW, and UHNW base?

What start-ups are actually making the real managers worried?

Comments (90)

Jul 10, 2016 - 7:12pm
dinganddong15, what's your opinion? Comment below:

The HNW and UHNW will always need humans. These persons always have their worth tied up in trusts, foundations, etc. that require a human to administer/monitor. From my experience these people will do business with people they like and will never just hand it over to a computer...My 2 cents.

 

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Jul 12, 2016 - 9:54am
BreakingOutOfPWM, what's your opinion? Comment below:
models_and_bottles:

Agree with the above. Roboadvisers are targeting the mass affluent segment or people with net worth >$100k but <$2 million or so. These people are not well served by existing financial advisers due to their relatively small asset base.

True HNW individuals are not going to turn their wealth over to a computer than can have a "whoops" moment and destroy their net worth. Additionally, HNW individuals tend to have complex tax, insurance, estate planning, etc. needs which a roboadviser can't come close to meeting.

No but what does happen a lot over the $2MM segment (even at the $10MM+ segment) is that clients tend to segregate their portfolio into a "low risk" bucket and a "high risk" bucket. Regardless of how you management money for clients, i.e. holistic portfolio vs goals based, clients and most advisors still think in terms of the more passive low risk part of the portfolio and where they want to pay for potential alpha.

Many clients in the mid to high net worth range are actually very fee sensitive, which is why you see such low negotiated rates on many of these accounts, and savvy clients will try to separately negotiate the more passive parts of their portfolio (whether a static index investment, IG fixed income, etc). Robos refer to individual firms, like Betterment, but also to online or private serve based computer models for automatic or enhanced portfolio managdment. To date robos have largely been positioned as a competitor to traditional wealth management. Going forward we are going to see more and more robos integrated onto wealth management platforms. So an advisor may have a $20MM client who likes to keep $7MM in a static indexed strategy with little or no tactical allocation in and out of that strategy and hates paying their advisor 1% a year for it. To date, they would need to keep that money outside of their advisor if they didn't want to pay significant fees or negotiate an exceptionally low rate (which WM firm management will probably come back to every 2 years and make the advisor justify). What the industry will probably see is an ability for an advisor to place a $7MM into the robo and incorporate it as part of the greater portfolio, at a lower fee breakpoint for the client. Right now there is a lot of resistance to robos from traditional firms but there are a few factors that may move the market in this direction:

  1. Advisors would rather keep assets and make something than make nothing
  2. The firms themselves seem to love robos - there have been acquisitions occurring in mass market WM firms ($500k-3MM or so in avg assets) and it's likely to trickle up to remain competitive
  3. As robos continue to gain in capabilities, they will be able to incorporate firm strategy so that there is no breakdown in story
  4. Advisors can be poor to average managers of tax lot harvesting and asset location - due to time constraints and complexity - robos have emerged with these capabilities and they're only getting better

I don't think we're going to see a solid line in the industry for much longer that says robo vs traditional. Everyone is going to have some sort of capability like this on their platform at one point. And a traditional advisor with a powerful computer tool (i.e. robo) helping to solve planning, tax and investment problems (i.e. automatic tax loss harvesting, better drift management, easier to make mass but customized changes across accounts, etc) can be a huge asset to a HNW/UHNW client who is fee sensitive - not to mention freeing time up on the team to focus on higher order planning, relationship management etc.

That being said, I don't think there is much risk of the HNW/UHNW industry seeing mass layoffs at the advisor level due to these capabilities. The more mass market fund providers might be a different story, but I believe to date they have also been boosting their advisor presence in order to focus on client retention, multigenerational selling etc. You don't want a computer to be your only touchpoint to a client even at that level.

Jul 13, 2016 - 9:52pm
WalMartShopper, what's your opinion? Comment below:
models_and_bottles:

Agree with the above. Roboadvisers are targeting the mass affluent segment or people with net worth >$100k but <$2 million or so. These people are not well served by existing financial advisers due to their relatively small asset base.

True HNW individuals are not going to turn their wealth over to a computer than can have a "whoops" moment and destroy their net worth. Additionally, HNW individuals tend to have complex tax, insurance, estate planning, etc. needs which a roboadviser can't come close to meeting.

^these needs are all met by others, CPA, attorney, insurance agent, etc. No financial advisor dares step foot into those realms. As for investing itself, I don't see why automation won't take it over.

I understand the relationship aspect, but I would think at some point the fees outweigh the benefits when compounded. Of course I'm not UHNW so...

If the glove don't fit, you must acquit!
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May 27, 2018 - 5:06am
LiechtensteinMonkey, what's your opinion? Comment below:

You have absolutely no clue. I'm not too familiar with robo-advisors BUT whatever you say about them, robo-advisors will continue to get better over the next X years at an exponential rate. Humans will unfortunately stay at the same level.

If you believe that computers have more "whoops" moments than humans... lol And for the relationship part, I'm sure 10 years ago people said that McD employees also had a special relationship with their customers

MSc student in CS: Mathematical Engineering (= big data oriented) Not studying true AI, but plenty of close friends who do.

Feb 20, 2019 - 7:24pm
zeejus, what's your opinion? Comment below:

The wealth management industry is getting devastated by low fee indexing, fintech, and the abysmal relative performance of active management in the post financial crisis era. We are still holding on because of asset price inflation and uneducated boomers tapping retirement funds still willing to pay high fees BUT the business is moving toward a fee for service model rather that a fee for AUM model, which is FAR less lucrative.

You have certain players performing who are servicing UHNW folk but they are starting to feel the pinch too. Moreover, the individuals tied to the UHNW are not going anywhere even if you are waiting around to take that relationship over and they are telling you that you're going to inherent that client if you just stick around.... Good luck.

Jul 11, 2016 - 2:52pm
BobTheBaker, what's your opinion? Comment below:

lol clients worth over 10 mil., especially old clients, don't give af about being charged 100 bps vs 10 bps, they'd rather be able to call their guy and discuss investments whenever they want.

Array

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Jul 13, 2016 - 7:11pm
dinganddong15, what's your opinion? Comment below:

I tend to agree, I work in the UHNW space and our biggest clients (100mm plus with us) are the most fee sensitive clients we have...

 

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Feb 20, 2019 - 7:26pm
zeejus, what's your opinion? Comment below:

Yeah this sentiment could not be more wrong. As if these guys don't watch TV or use the internet and dont get prospected at every social setting...

Jul 12, 2016 - 7:30am
Arti, what's your opinion? Comment below:

Roboadvisers are very primitive to replace anything at the moment.

You killed the Greece spread goes up, spread goes down, from Wall Street they all play like a freak, Goldman Sachs 'o beat.
Jul 12, 2016 - 11:32am
nyguy11, what's your opinion? Comment below:

This is a great question. I currently work for BNY Mellon and this is an issue everyone within the industry will be adapting too in the coming years.

With regards to the idea that in 5,10,15 years traditional wealth managers will become obsolete is incorrect. Robo Advisors will definitely be a disruptive technology within our industry because you are able to provide investors advisory services at a fraction of what it would cost to provide them with a traditional human advisor. The way in which our industry sees this technology being used is as a complement to the traditional advisor. people will any real (7, 8 figure accounts) money require services that are beyond the scope of robo advisors. robo advisors will be diploid to the millions of investors that have money in the market but currently self manage their accounts.

these Robo Advisors can recommend a different portfolio allocation based in each clients risk profile. the client can either go with the recommendations or ignore them and continue to self manage. its all about providing clients with the most information possible at the lowest cost.

Jul 13, 2016 - 12:51am
reformed, what's your opinion? Comment below:
networkyournetworth:

What in the actual fuck is a "rising junior". You're a junior, plain and simple, holy hell. Kudos to you for being proactive at your age but please drop that "rising ______" crap now, it makes people cringe.

it means you'll be a junior once the school year starts. It was fairly common where I grew up. Have yet to see such a strong reaction to it.

Array
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Jul 12, 2016 - 4:11pm
Attack_Chihuahua, what's your opinion? Comment below:

No.

Human psychology. No matter how good ANY forecasting or trading model is, there will always be dissent and the majority will be too wedded to their biases to use that model effectively.

That doesn't mean it won't have a significant effect on the industry over time but don't expect humans to be replaced.

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Jul 12, 2016 - 11:36pm
surferdude867, what's your opinion? Comment below:

If you believe that algos will take over PWM, and there is plenty of evidence to suggest that it's going to happen even at the high end (just look at Ray Dalio pouring money into artificial intelligence), then you should focus on building skills in software development or sales.

Jul 13, 2016 - 9:13am
BreakingOutOfPWM, what's your opinion? Comment below:

If that's your passion, yes. Being a face to face advisor with a $500MM+ book will still be a pretty sticky job. Firms are really hesitant to fire/lay off established advisors with big books of business when they might try to poach clients. Most software people are replaceable with very little revenue impact.

The advisors will still be there. They will just have a lot of powerful technology behind them. Some things (i.e. multigenerational transfer techniques, business/personal tax strategies and partnerships, optimizing gifting & insurance, etc) will probably always need a human component, even in our lifetime. The problem is, there are too many potential inputs to ensure the output is correct. A good advisor can tell when a client is holding back/what seems most important to that client and probe in the right direction, saving a lot of time.

Jul 13, 2016 - 12:40pm
beastmode123, what's your opinion? Comment below:

I can't imagine anyone putting a large amount of money into a fund and not want to be able to call and talk to a real person about their account.

Jul 13, 2016 - 2:12pm
UTDFinanceGuy, what's your opinion? Comment below:

In 50 years? Probably.

During your professional career. No.

"It is better to have a friendship based on business, than a business based on friendship." - Rockefeller. "Live fast, die hard. Leave a good looking body." - Navy SEAL
Jul 13, 2016 - 3:14pm
GoldenEagle2009, what's your opinion? Comment below:

As long as humans continue to be irrational (in the markets, financial decision making and planning) there will be a need for human interaction at some point.

Robos currently are not capable of complex financial planning, hence why the argument that they're a replacement for a good wealth manager is completely incorrect. Managers are embracing Robos as a feeder for young, not-yet-profitable clients. The relationship can be established, and client assets invested into a robo. Hopefully the person's wealth grows over time and the manager can then become valuable.

The introductory and basic things will be automated away, such as questionnaires, risk tolerance assessments, and basic asset allocation planning, but education, coaching, advising, will be maintained...at least for the foreseeable future.

Jul 13, 2016 - 8:15pm
DickFuld, what's your opinion? Comment below:

Target date funds do something very similar to roboadvisors. They have their place, which is mostly for working people in their 401k. You don't see centimillionaires or billionaires dropping all of their cash in these funds just because they can be cheap. Maybe roboadvisors will gain traction with semi-sophisticated retail investors, but the least sophisticated still need someone to tell them what to do. If people trusted an algorithm, they would probably do the research on their own.

Jul 13, 2016 - 8:59pm
EightAceTres, what's your opinion? Comment below:

The FinTech revolution is targeted at individuals that have a negative view of Wall Street and their fees. The media is filled with stories that investing in "active" investing strategies is akin to throwing darts at a board. Sophisticated investors have learned that this is not the case. Institutions will not subscribe to this theory, as they can often get discounted fees with managers that provide the best returns and will not shift to robo advisors.

Read up on Yale Endowment's returns and you will quickly see why institutions and individuals with access to top performing managers (read: $$$) will not change. If you're thinking of joining the Merrill Lynch PWM practice, maybe that will face issues in the next couple of years. However, I think the technological shift in some industries will be short-lived. A similar industry is the book industry. The shift to e-books has proven to be a fad and print books are gaining market share that they lost in recent years. Over time, technology and robo advisors will be proven to be a fad.

Millenials have a view that technology at some point, will usurp all; maybe it will, but it will take time. I can't tell you how many interviews I have conducted, where applicants will extoll their excitement about the wearables markets. However, at this point, the wearables have proven to be inaccurate and subpar at best. For the moment, they have first mover advantage and can build a brand name and be associated with a growing industry (e.g., FitBit). Over time, the hardware associated with it will be proven to be a commodity, just like robo advisors.

The reason I provide the examples is to explain a simple point that will be proven out over the next ten years. The more you worry about costs, especially 20bps vs. 100 bps, the more you sacrifice returns. Returns trump costs... after all, you can't sell "cost-savings" for a long time before everyone realizes you provide no value.

Play the long game - give back, help out, mentor - just don't ever forget where you came from. #Bootstrapped
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Jul 14, 2016 - 9:36am
IlliniProgrammer, what's your opinion? Comment below:

No. The human touch isn't going anywhere as long as people have money. This is something that, as you can see by my post history, I haven't always believed.

PWM is in a funk right now because millennials are fairly sophisticated and fairly conservative about finance. Having lived through a financial crash sure helps.

But not every generation and not every person will feel that way. And lottery winnings, inheritances, and tech sector windfalls will go back to being squandered. And people will worry about their money and need some handholding. And the financial advisor will make a comeback to the extent he hasn't already made one.

Jul 13, 2016 - 10:11pm
muthom, what's your opinion? Comment below:

Digressing here a bit: how will fintech affect corporate banking? I guess relationship managers will still exist, but what about those who are in credit underwriting and other MO or BO functions?

Jul 14, 2016 - 3:58am
Naoki Hanzawa, what's your opinion? Comment below:

Your job will be fine.

"Goldman Sachs hired prostitutes to win Libyan business, court told. Wall Street Bank disputes allegations by Libyan sovereign wealth fund that it paid for the women, as well as private jets and five-star hotels"

https://www.theguardian.com/business/2016/jun/13/goldman-sachs-hired-prostitutes-to-win-libyan-business-court-told

Jul 14, 2016 - 6:00pm
thehumancalc, what's your opinion? Comment below:

In addition to the reasons said above, I think there will be a demand for human financial, advisors because most current advisors are very old. I think I've read that there are more FA's above 80 than under 30, to put it in perspective. In addition, I think the CFP is a good play for the same reason. I believe robo advisors will take over lots of HNW clients, but the UHNW clients will still demand a team of humans managing their wealth.

Jul 14, 2016 - 10:03pm
PureAlpha31, what's your opinion? Comment below:

Agreed, if you take a look at Betterment's ADV under discretionary assets, you can see that their average acct. size is just ~$24,700. In comparison, Wealthfront's average is ~$42k.

Jul 16, 2016 - 2:39pm
Dances With Newfoundland, what's your opinion? Comment below:

PWN isn't going anywhere. The more important question is whether you want to make this your lifelong career. The problem with PWM is that you don't really develop transferable hard skills since most of your job is kissing rich people's ass. If you are able to get it, banking and MBB consulting still provide the best overall combination of pedigree, business skills, and exit opportunities. Also, you will be working with really smart people while the caliber of talent in PWM is to put it mildly, less than impressive.

Jul 16, 2016 - 3:59pm
Rags to Hermes, what's your opinion? Comment below:

Are you kidding me? Considering that 90% of people in this country have a financial IQ of 0, they need a human that they trust to get advice from. Robots may take over the actually analytics of wealth management, but someone still needs to relay to the client what the robot is doing.

There is much more to wealth management than just managing investments. Will a robot ever be able to help with estate planning, or give specific retirement advice, tax management, or planning for a college fund? Highly unlikely because it is so dependent on the situation of each individual.

Jul 16, 2016 - 4:36pm
Disjoint, what's your opinion? Comment below:

All bull shit - People surround robo advising with some sort of halo - you have to realise that for AM this is all rule based algorithms - extremely dull to put together and it changes all the time and there is NOTHING revolutionary or exciting about it.

My wife's online broker has "robo advising", it tells her what funds to select based on her risk profile: risky, risk neutral, risk avert - and that's about as complicated as it's ever going to be... Nothing genius about it - it already exists and it's about as far as it's going to go. Some shit AM are trying to knock down fees and reduce fees by using "robo advising" (ie: nutmeg)- all they are doing is exactly what regular AM are doing except they are just knocking down fees to win market shares. That's not due to robo advising, it's due to increased competition.

The real advising comes in with tax advice for wealthy people using AM, and clever capital allocation - last time I checked tax rules change every minute in congress and no robo can keep you up to date on this. If you are clever enough to go and invest in funds without an AM you won't need an adviser and you are probably doing it yourself as is. If you are using an adviser and you have less than $1mln (mainly chipping fees from you and not really giving you any value), than you probably won't be using a robo as it would be too much trouble or you would have already invested in some funds yourself.

/ rant over

Jul 17, 2016 - 11:14am
BreakingOutOfPWM, what's your opinion? Comment below:
Disjoint:

All bull shit -
People surround robo advising with some sort of halo - you have to realise that for AM this is all rule based algorithms - extremely dull to put together and it changes all the time and there is NOTHING revolutionary or exciting about it.

My wife's online broker has "robo advising", it tells her what funds to select based on her risk profile: risky, risk neutral, risk avert - and that's about as complicated as it's ever going to be... Nothing genius about it - it already exists and it's about as far as it's going to go. Some shit AM are trying to knock down fees and reduce fees by using "robo advising" (ie: nutmeg)- all they are doing is exactly what regular AM are doing except they are just knocking down fees to win market shares. That's not due to robo advising, it's due to increased competition.

The real advising comes in with tax advice for wealthy people using AM, and clever capital allocation - last time I checked tax rules change every minute in congress and no robo can keep you up to date on this. If you are clever enough to go and invest in funds without an AM you won't need an adviser and you are probably doing it yourself as is. If you are using an adviser and you have less than $1mln (mainly chipping fees from you and not really giving you any value), than you probably won't be using a robo as it would be too much trouble or you would have already invested in some funds yourself.

/ rant over

Actually, there are robos on the market who have extremely high tech algorithms to optimize tax location, asset location across households, automatically tax loss harvest in portfolios, etc. These capabilities exceed what a time constrained advisor can manage to accomplish on their own. This is part of my argument as to why robo advising is going to be incorporated in some way in the HNW space; these tools are valuable, free up a lot of time and can really augment an advisors services.

Where they hit the wall is - if you're trying to optimize who owns what assets in a returns based algo based on tax brackets, life expectancy, whatever a robo can give you a great output there. But you need a human to factor in the client's emotional attachment to particular securities, strategies, complications of the ownership structures, level of trust in the family, etc. The computer thinks too "straight". At $500k, these questions can be easier to answer and a client can probably do it with a computer as a guide. At $15MM, these questions can be extremely complicated to handle.

Jul 18, 2016 - 8:35am
thebrofessor, what's your opinion? Comment below:

the benefits of asset location are peanuts compared to tax strategies for people with 5-10mm+

asset location may save you tens or hundreds of tax dollars. having a well thought out estate plan can save you tens or hundreds of THOUSANDS of dollars (even millions). robos can't guide you through that.

Jul 28, 2016 - 4:25pm
alphaisntdead, what's your opinion? Comment below:

A big part of PWM is the service aspect- but not from a tax perspective in my experience. I've been working for a PWM firm with proprietary products for a while now and while some of our portfolios are created to be tax-exempt (or as much as possible) we don't do any actual tax planning. UHNW individuals pay tax professionals to do the tax stuff.

Jul 29, 2016 - 9:32am
BreakingOutOfPWM, what's your opinion? Comment below:
alphaisntdead:

A big part of PWM is the service aspect- but not from a tax perspective in my experience. I've been working for a PWM firm with proprietary products for a while now and while some of our portfolios are created to be tax-exempt (or as much as possible) we don't do any actual tax planning. UHNW individuals pay tax professionals to do the tax stuff.

If the advisor you work for doesn't do any tax planning beyond buying munis, then they are a low value add advisor. To our point. The good PWM advisors on the investment side also understand enough high to mid level transfer and titling strategies to know when and how to engage the rest of a client's advisory team (attorney, CPA, etc) for the bulk of their relationships.

Jul 29, 2016 - 9:38am
alphaisntdead, what's your opinion? Comment below:

Note the some of our portfolios.

You're right though, it's important to know how to engage the rest of the team. Again, from my experience, that usually requires working with different tax professionals, not someone in house at your own firm.

Jun 22, 2017 - 4:58pm
SuperU, what's your opinion? Comment below:

CEO's of SoFI and Betterment explain perfectly the opportunities that have been created by financial services being slow to adapt.

Sofi's CEO... https://www.thefinancialrevolutionist.com/interviews/a-conversation-with-sofis-ceo-mike-cagney?rq=wealth%20management

Betterment CEO... https://www.thefinancialrevolutionist.com/interviews/a-conversation-with-betterments-ceo-jon-stein?rq=wealth%20management

May 27, 2018 - 1:28am
RealSlim, what's your opinion? Comment below:

Disclosure: I've spent 5+ years in wealth management at a BB and built a business that generates post MBA-level income from cold-calling random people. Didn't join a boutique/regional team and certainly didn't have a natural network (which is why I believe some of your opinions may have been skewed).

1) UHNW families generally are the MOST fee-sensitive people. Are you kidding me? Imagine you have 1M, get charged 1%, and pay $10,000/year in fees. Now, imagine you have 10M , get charged 1%, and pay $100,000/year in fees for similar investment strategies. Yeah...good luck convincing the client to do that. Are there BB advisors who get away with doing this? Sure, I've seen clients with sizable portfolios who get charged this, when all they have are mutual funds. There's a pattern: these are the folks who are typically older and don't know how to use the internet (technology) to research. What happens when this generation dies?

2) We could argue that these are bad advisors and that we should be using other instruments for these 10M clients. So, let's assume that's the case: we add in some ETFs, do some individual stock valuations, credit analysis and build a bond ladder, maybe add in some private equity/real estate/debt or hedge funds. Despite these alternative investments making up 10% of your 10M portfolio's asset allocation, would you pay 100k/year to have someone manage your 10M now? Yeah, didn't think so...

3) But wait a second! What I'm saying can't be true because there are many advisors I know who charge 1% per year off of accounts way more than 10M. The ones I know are the ones who attend the same country club, take clients to golf, hire assistants to clean their clients homes/cars/dry-cleaning, and also do their kids' college applications for them. I'm not joking. What value can we bring to a 10M portfolio that a robo advisor can't bring to a 1M portfolio? There's only thing I can think of: emotional reassurance. We bring value in that we can provide them the assurance that we're the go-to person to take care of the most random issues for them; someone to talk to; someone who they can trust. It's not hard for robo to ask them a list of questions, sorta like what TurboTax does, and then spit out some gifting strategy for their kids/grandkids/charitable orgs/etc. Or a family A/B trust, or irrevocable insurance trust. Whatever. These complexities may have been difficult for clients to learn/research at one time, but with the invention of Google, and in this day and age, information is accessible to virtually anyone who has the internet and can read. That being said, some UHNW clients are still lazy and refuse to do any of the work themselves, which still provides us some opportunity.

4) I think people just refuse to accept the fact that we're relationship managers, and that our jobs aren't complex, though we make it sound like it is to protect our fragile egos. We only add value by creating and maintaining relationships; I've accepted the role, so long as I'm able to protect my clients from blowing themselves up by making bad financial decisions--which helps justify the fees that I charge.

5) Back to the original question: will wealth management still be around? Yes, because there will be a lot of accounts floating around after the industry changes are done, when all of the garbage in our sector washes out. As long as clients continue to be lazy/not research and/or act irrational when there is volatility in the markets, we'll have jobs. Will it continue to pay as much? Doubtful.

6) I would like to point out that we'll be out of jobs if BlackRock is able to predict human behavior; somewhat similar to the way that Netflix, Facebook, Google works. Netflix tracks how long we view movie pages, whether we watch the preview, if we have finished the movie, how many minutes into the movie we've watched, etc. Similarly, I can see BlackRock gathering enough data from all of their other investment products etfs/mutual funds to improve their "all weather/multi asset" portfolios by seeing what volatility trigger levels retail investors sell at, when they re-enter the market, and what keeps them consistently invested throughout the course. This will certainly provide insight for the portfolio managers to asset allocate in such a way that makes their assets stickier, and thus collect a consistent stream of fees. If this data can provide us the perfect combination of volatility and returns (calibrated to each retail investor's risk tolerance), the majority of them would no longer act irrationally, correct?

There's a McKinsey report showing that people do trust technology, regardless of household net worth.

McKinsey

Feb 20, 2019 - 8:06pm
zeejus, what's your opinion? Comment below:

Terrific write up. I'd have added that QE and the zerobound will in the long run be as damaging to the investment management industry as any of the points you mentioned above, if not more so, as its reinforced and accelerated the trends you identified IMO - although its clearly provided a sugar high for long only managers the past many years. Economic analysis and fundamental analysis is of little value add and financial advisory pro's have always been able to cite these points as a value add but in our world markets are merely political utilities/necessities as economic growth is based on perpetual asset inflation, rather than asset inflation being tied to economic growth.

May 27, 2018 - 9:45am
rickle, what's your opinion? Comment below:

Some thoughts from a retail investment advisor / PLANNER

  1. Robo-advisors are disruptive and the result of a highly commoditized industry. We've gotten here because there is not enough value creation in pure money management. Way to many are focused on beating index returns and fail (at much higher pricing). Way to little emphasis on the role of the planner.

  2. People like people (most). Whether you're dealing with affluent, upper affluent, HNW or UHNW, the value is in PLANNING which requires humans. Understanding goals, concerns, and the underlying reasons why they are goals and concerns is where true value can be created.

  3. As a retail advisor and coach to many retail advisors (100s over the years), I see two primary groups: Those that manage money, and those that manage relationships. The money managers win accounts on pricing and access to resources but lose accounts on performance (much of which they can't control!) and pricing. Thus commoditization. The relationship / planner types typically don't lose clients. Depending on the individual, they are also quite capable of managing money or they partner with technical asset managers and focus on quarterbacking the relationship and making sure needs are being addressed and accomplished.

  4. I actually think the robo model is most suited for the mid market as they have less complex issues and are likely perfectly fine with a decent fund portfolio. Ironically, it's probably more important for them to have a real advisor / planner as they need guidance in basic money mgmt, retirement planning, etc. A poorly served market indeed as most advisors won't spend time.

I realize my thoughts are geared towards the retail world and most working with HNW and UHNW don't consider themselves retail. Trust me, you are! Relationships with the HNW / UHNW client and/or their team (could be family office scenario) is as much about relationship and control as anything else. Probably more!

At the end of the day, the market is the market. Choosing to slice up a portfolio into many sleeves, active mgmt, ETFs, third party, is the world we created. Clients don't really care. They just want to trust the person (s) managing their money and affairs. They want good guidance and are as much or more concerned about avoiding pot holes or trouble spots (per their criteria) than outperforming markets.

Find ways to create value and you will always be needed.

Jun 2, 2018 - 3:56am
RealSlim, what's your opinion? Comment below:
rickle:
Some thoughts from a retail investment advisor / PLANNER
  1. Robo-advisors are disruptive and the result of a highly commoditized industry. We've gotten here because there is not enough value creation in pure money management. Way to many are focused on beating index returns and fail (at much higher pricing). Way to little emphasis on the role of the planner.

  2. People like people (most). Whether you're dealing with affluent, upper affluent, HNW or UHNW, the value is in PLANNING which requires humans. Understanding goals, concerns, and the underlying reasons why they are goals and concerns is where true value can be created.

  3. As a retail advisor and coach to many retail advisors (100s over the years), I see two primary groups: Those that manage money, and those that manage relationships. The money managers win accounts on pricing and access to resources but lose accounts on performance (much of which they can't control!) and pricing. Thus commoditization. The relationship / planner types typically don't lose clients. Depending on the individual, they are also quite capable of managing money or they partner with technical asset managers and focus on quarterbacking the relationship and making sure needs are being addressed and accomplished.

  4. I actually think the robo model is most suited for the mid market as they have less complex issues and are likely perfectly fine with a decent fund portfolio. Ironically, it's probably more important for them to have a real advisor / planner as they need guidance in basic money mgmt, retirement planning, etc. A poorly served market indeed as most advisors won't spend time.

I realize my thoughts are geared towards the retail world and most working with HNW and UHNW don't consider themselves retail. Trust me, you are! Relationships with the HNW / UHNW client and/or their team (could be family office scenario) is as much about relationship and control as anything else. Probably more!

At the end of the day, the market is the market. Choosing to slice up a portfolio into many sleeves, active mgmt, ETFs, third party, is the world we created. Clients don't really care. They just want to trust the person (s) managing their money and affairs. They want good guidance and are as much or more concerned about avoiding pot holes or trouble spots (per their criteria) than outperforming markets.

Find ways to create value and you will always be needed.

I don't mean to be offensive, but you're a coach to financial advisors, therefore your sole job is to make advisors buy into the "relationship" process of wealth management. Even with the closest relationships, pricing and performance MATTERS. For example, you need to sell your 1MM house. Would you rather pay your realtor, whose also your good friend/cousin/whomever a 30-50k commission? Or would you use Redfin for 10k? Keep in mind Redfin just does as efficient of a job...

I wouldn't even do it if my mother was a realtor. I would just use Redfin and split the difference in cost savings with her. Whoever can't see this fact is a lie. People use relationships for these services because they aren't aware of the other options/too lazy to learn/are untrusting.

Maybe at a higher, more complex, few hundred million dollar deals, relationships matter, but I firmly believe that simple deals worth

Jun 2, 2018 - 2:19pm
rickle, what's your opinion? Comment below:

Actually, I'm an advisor and a coach. Manage my own book and coach others, My experience with real clients (100k - 50M) has been relationship matters above all else. I won't say that pricing doesn't matter at all but it's less important, provided it's reasonable, if you provide a unique client experience and significant value. I imagine the value is harder to provide, and therefore, pricing matters more, with the larger clients. They are getting advice from multiple sources, have CPAs and Attorneys on retainer and are likely not that open to a relationship. A family office, for example, isn't going to seek my counsel on tax planning, financial planning, etc. They just want a vendor relationship which is about execution and price. But for the typical retail investor (more my world), say 500k - 5M, they need all kinds of education and assistance.

The irony of all this is many of the larger fish think they don't need education, rely on their traditional advisors when their advisors need the education. You'd be surprised how many "advisors" , whether they be attorneys, CPAs, Fin Advisors, don't know some very basic things and cause a whole bunch of tax trouble by nor taking care of things properly up front. I can't tell you how many attorneys have screwed up client estates through lack of knowledge. CPAs suggesting a company pay for and deduct funding for buy out agreements and screw up the taxation of a settlement. I guess none of it matters until someone gets audited and then it all matters. These are the types of things that are far more important than "my fund vs. your fund" and "100 bps vs. 23 bps" . Who cares what it costs or the performance if your client just lost millions because of poor planning. At the kitchen table level, who cares what your fees were if they need nursing home care and you didn't make sure the proper protection was in place. You just cost them 75k - 100k per yr for the rest of their life. I think they would have been happy to pay a higher fee on 500k and still have a nest egg.

I think the biggest problem is sooo many call themselves financial advisors and they're not! They're money managers. One has very little to do with the other. The FA who knows how (and wants ) to manage money can do it themselves because technology has made it quite easy or use a whole host of low cost TPA models and get institutional type investing for their client.

We're likely in very different worlds. I don't see a robo advisor eliminating the need for a real advisor as the advisor is at the crossroads of financial management and human behavior. Getting it right for that individual client is what it's all about.

Jun 2, 2018 - 1:09pm
REPE God, what's your opinion? Comment below:

No. Wealth Managers are basically babysitters for people's money. It isn't a super technical job, but it's immensely personal. It's also a sales job at a lot of companies. Wealth Managers don't add values by hand-picking stocks or even using proprietary allocation strategies. They add value by bringing more accounts in.

Jun 2, 2018 - 3:58am
RealSlim, what's your opinion? Comment below:
rickle:
and quite lucrative without the crazy hours. Build a book and manage it.

For now--but keep in mind, we carry the same stress levels of anyone else. In fact, if one is a truly good advisor, he/she will always feel a little of stress because we're responsible for people's money. Hundreds of relationships. Thousands. And if you don't feel responsible, then do you truly care about your clients' well-being?

Most Helpful
Jun 2, 2018 - 2:30pm
rickle, what's your opinion? Comment below:

True - and understanding client issues, goals, concerns in a fluid environment as things change all the time. Managing expectations and dealing with the human behavior side is key.

I work with a FA who is highly technical. I kid he should get his CFA and work as a PM at a fund. Actually, he would be quite good at that. Brilliant guy, knows everything about everything financial. Like he swallowed the research from an ER analyst on virtually every Sector. He puts this client spread sheet together (11x17, mutiple pages, small font, 100 footnotes, etc.) He sends it to clients for review ahead of meetings. He manages a couple hundred million. Lots of 500k - 5M accounts. You know what? Not one of them care about his spread sheet. They actually tell him that. They can't read it, don't understand it, etc. The consumer doesn't care about any of that. They need to Know you, Like you, Trust you and know that you know what you're doing and have their best interest at heart. It's not that different than buying a car. Do you really care what's under the hood? DO you want the car salesman to walk you through the finer details of the engine, motor, etc? NO! You want to drive the MFer and see how it feels. Probably more concerned with the blue tooth and other features than you care about the real stuff.

This guy loses accounts when he underperforms because his whole value prop is about portfolio construction, it's not about planning and making sure his clients don't have "2am issues".

Jun 2, 2018 - 11:37pm
RealSlim, what's your opinion? Comment below:
rickle:
True - and understanding client issues, goals, concerns in a fluid environment as things change all the time. Managing expectations and dealing with the human behavior side is key.

I work with a FA who is highly technical. I kid he should get his CFA and work as a PM at a fund. Actually, he would be quite good at that. Brilliant guy, knows everything about everything financial. Like he swallowed the research from an ER analyst on virtually every Sector. He puts this client spread sheet together (11x17, mutiple pages, small font, 100 footnotes, etc.) He sends it to clients for review ahead of meetings. He manages a couple hundred million. Lots of 500k - 5M accounts. You know what? Not one of them care about his spread sheet. They actually tell him that. They can't read it, don't understand it, etc. The consumer doesn't care about any of that. They need to Know you, Like you, Trust you and know that you know what you're doing and have their best interest at heart. It's not that different than buying a car. Do you really care what's under the hood? DO you want the car salesman to walk you through the finer details of the engine, motor, etc? NO! You want to drive the MFer and see how it feels. Probably more concerned with the blue tooth and other features than you care about the real stuff.

This guy loses accounts when he underperforms because his whole value prop is about portfolio construction, it's not about planning and making sure his clients don't have "2am issues".

I completely agree, but that's making my point for me. Clients don't care at all about the details of the investments, they just want to care that it's reliable and performs. This fact makes the case for roboadvisors (when they can finally get their acts together AND when they're able to advertise it properly).

Ask a client if they think Google/Apple/Amazon is more knowledge or dependable than a human being? I think we all know the answer to this. Google can infer things about us, that we may not even know ourselves...

Look, financial advisors will always be around, because human beings are emotional, and thus we are needed. What I'm saying is that we have to stop being so arrogant and acting like our roles are super important. We are RELATIONSHIP MANAGERS. Plain and simple.

May 29, 2018 - 4:58pm
NoseGoes18, what's your opinion? Comment below:

Not one mention of the NNT Black Swan?... It's not like the "robo-advisor" is a new thing... Firms have been trying to create the ultimate allocation/stock picker since math existed.

I would love to see more "robo-advisors" because as they all converge to one "master of the universe" allocation it sounds like a giant bubble in the making. (Yes, I understand that AI would eventually create some distribution that is more accurate than the constantly wrong normal distribution - but we are SO FAR from this point, and we are still in the "garbage in, garbage out" phase... Normal distribution is what classical models use and it is garbage). Even with that aside, it takes one big blowup of the robo-advisor allocation while the kinks are being figured out to set back the capital raising (and consumer confidence) another decade or more.

Finally, if you add value, people don't bitch about fees. It really is that simple. Other posts are correct that clients are paying for the relationship AND the service. I work in UHNW and we give tax estimates, talk to CPA's, attorney's, real estate agents, etc and provide our opinion. I was brought on because I'm a CFA/CPA combo and the person I replaced was as well. We've had one client bring up fees in the last 12 months. Just my $0.02

Jun 2, 2018 - 3:59am
RealSlim, what's your opinion? Comment below:
NoseGoes18:
Not one mention of the NNT Black Swan?... It's not like the "robo-advisor" is a new thing... Firms have been trying to create the ultimate allocation/stock picker since math existed.

I would love to see more "robo-advisors" because as they all converge to one "master of the universe" allocation it sounds like a giant bubble in the making. (Yes, I understand that AI would eventually create some distribution that is more accurate than the constantly wrong normal distribution - but we are SO FAR from this point, and we are still in the "garbage in, garbage out" phase... Normal distribution is what classical models use and it is garbage). Even with that aside, it takes one big blowup of the robo-advisor allocation while the kinks are being figured out to set back the capital raising (and consumer confidence) another decade or more.

Finally, if you add value, people don't bitch about fees. It really is that simple. Other posts are correct that clients are paying for the relationship AND the service. I work in UHNW and we give tax estimates, talk to CPA's, attorney's, real estate agents, etc and provide our opinion. I was brought on because I'm a CFA/CPA combo and the person I replaced was as well. We've had one client bring up fees in the last 12 months. Just my $0.02

Would you mind providing us some examples of your fee schedules and what value you bring? I'm in the business and wanting to seek others' perspective.

Jun 2, 2018 - 4:05pm
rickle, what's your opinion? Comment below:

That's a reasonable thought. I agree. I view them as not the competition, but ultimately, part of my client solution. A partner if you will. I don't know why any retail advisors try to manage $ these days when there are so many great resources available. Currently use an ETF platform for part of our management implementation that costs under 25 bps all in (including the selection and allocation). Add minor custodial fees and you can charge a 1M account 150 bps and keep 100bps for yourself without picking stocks,watching screens. Focus your time on understanding your client and making sure their assets are aligned with their goals (from a tax, time frame, and risk tolerance perspective - the 3 Ts). They don't care who picked the stocks. They don't ask "then why are we paying you?" As long as you eliminate their 2am issues and get them where they need to go, they love you (as they should- cause they have no f ing idea how this stuff works- that's the truth!).

Jun 2, 2018 - 11:42pm
RealSlim, what's your opinion? Comment below:
rickle:
That's a reasonable thought. I agree. I view them as not the competition, but ultimately, part of my client solution. A partner if you will. I don't know why any retail advisors try to manage $ these days when there are so many great resources available. Currently use an ETF platform for part of our management implementation that costs under 25 bps all in (including the selection and allocation). Add minor custodial fees and you can charge a 1M account 150 bps and keep 100bps for yourself without picking stocks,watching screens. Focus your time on understanding your client and making sure their assets are aligned with their goals (from a tax, time frame, and risk tolerance perspective - the 3 Ts). They don't care who picked the stocks. They don't ask "then why are we paying you?" As long as you eliminate their 2am issues and get them where they need to go, they love you (as they should- cause they have no f ing idea how this stuff works- that's the truth!).

Because when a high-net-worth client, who actually watches the news and has a 4M portfolio with you, calls you to say "hey let's decrease our exposure to emerging markets and/or industrial sector because of international politics", we can't exactly go "relax, we have it on autopilot using some asset allocation model established by home office." I've heard responses such as "wait, so you don't actually manage it yourself? hmmm"

Scratch that, I've heard it from 250k clients--not just 4M clients. I don't think anyone who can read will be too happy for paying FAs a fee, knowing they don't do "any" work at all. We should be earning our fee in at least researching different fund managers, or adding alternatives to the portfolio.

Imagine every time they ask us to make allocation changes to the portfolio and we respond by "sooo how's the family doing these days? remember that great baseball game we from last summer? we should do it again!"

Jun 3, 2018 - 9:39am
rickle, what's your opinion? Comment below:

Only a "line" if you use it that way. It's not important that we agree. You have your business and I have mine. Not sure how long you've been at it. Don't know your skill set or type of clients. Don't know how you acquired your clients. Do they work with you because you're part of the team at the bank or do they work with you because they want to work with you?

I'm an independent FA. No private banker or WM team ever brought me a client. 100% of my business has come from my own prospecting. Fortunately for years it is all referral based, because of the value and experience received by my clients. Ask yourself this question: If you were to leave your firm, how many clients would go with you? If the answer is less than 75%, you are not providing value. Let's face it, we don't make any products. Sans proprietary crap, everything they get from you they can get just about everywhere. So why are they working with you? It better not be because of fees because that's why they'll leave you in a heartbeat. That's the commoditization you need to break away from. Yes it's relationship management. But the relationship needs to be based on client receiving value other than in the form of the lowest fee. That's a race to the bottom. I don't have clients like that. I could, but I choose not to work with them up front.

The comment about the 4.99 planning book from Amazon accomplishing the planning role is really irrelevant. Using that logic, no one should hire anyone for anything. I "could" watch a youtube video to learn how to re-grout my shower, put in new wood floors, install a garage door opener, make a fine meal, or do anything. The point is, will I and / or do I want to? For most people the answer is "no". They don't want to learn the difference between these investment vehicles, tax issues, etc. If they did, they would. It's not magic. They could learn just like you and I did but they are busy and prefer to spend their time doing other things.

Again, I'm sure we disagree. Good conversation though.

Jun 3, 2018 - 10:22am
RealSlim, what's your opinion? Comment below:

That's actually something we finally do agree on, and I often use that on my clients who are fee sensitive too. Can I change my own flat tire? Sure. But I rather pay someone the $100 to do it for me. Not worth my time.

My point was that with technology advancing the way it currently is, someone can now come and tell our client they don't need to read that 4.99 Amazon book. They can just sit back and have someone do everything that 4.99 book teaches them to do, for a fraction of what we charge.

By the way, I cold-called 200+ businesses to build a book of business to eventually land at a large shop that offers private alternatives. I get what you mean by saying that our value comes from the trust we establish with our clients, but really, you're smartest/most sophisticated clients don't care about the fees? Because the only ones paying me the fees are the ones who want to do the least amount of work (because this stuff gives them a headache) and get the most emotional during market volality.

Again, I respect your opinions, but I don't see how this business can't get commoditized if a tech giant comes into the market (assuming equal advertising/distribution). McKinsey/Bain/EY/Deloitte have done countless surveys that the public, generally, feel comfortable investing with a robo-advisor, regardless of the household net worth. Now, add that service to a name like Google/Apple/Amazon, and I'm sure that comfort level exponentially increases.

Jun 3, 2018 - 10:46am
rickle, what's your opinion? Comment below:

You make good points. A big difference between our views likely lies in our roles in the market. I take it you are primarily engaged in money management (i.e. investing your client's money). Although we do a lot of that, it's a subset of financial planning (not talking about the ridiculous 100 page 3 ring binder BS so many shops put out - that NOBODY READS OR CARES ABOUT!). We work with them on a lot of different levels including asset protection, business succession and the principal fundamentals of planning. The investments are just a piece of the puzzle and likely the most commoditized piece. In a vacuum, I see that as a difficult business. In context to the overall client relationship , they just give us that piece because they do everything else with us. I guess if we were outrageous with our fees, that would be a different story. Once in a blue moon, (literally just a few times over many years) I've had a client question fees. I've had to re-explain the whole set of services we provide and tell them that lower fees would mean a very different type of relationship (more transactional). Have actually had one go that route only to come back a year later.

Going back to one of my previous posts, it's about avoiding the "commoditization trap". @ business models. 1. Highly scaled, competing on price (Walmart), and 2. Unique Client Experience where your overall services are the product, (not, in this case, the investment management). In one they're buying the investment management for as little as possible. In the other, they're buying you/ your firm.

The neat thing, which is what keeps me going, is you can always be creative and find new and better services to provide (i.e. create more value). Sometimes you just have to ask them what would be helpful and then create that capability or partner with an expert provider. (or another division within your firm if the silos don't preclude you from that)

Cheers!

Jun 3, 2018 - 11:23am
rickle, what's your opinion? Comment below:

...And for those of you on the tread who oppose the sales world ("salesy"), you need to learn that nothing happens without sales. Everything in business is sales (selling to a client, selling your investment ideas to your MD, selling your staff on a new initiative,selling an opportunity for a colleague to move his family to open a new office, selling a program to the board - those are fun -etc.) What do you think the McKinsey Partner or GS MD do? They sell.

Remove form your mind the transactional, manipulative, arm wrestling, "salesy", approach (i.e. used car salesman). I hate that too!

Consultative selling, however, happens to be a fine art and noble cause. Understanding your client's needs / problems, finding appropriate solutions, and helping them implement necessary changes to their world. In other words, being a transformative agent. That's what sales is. Without it, nothing gets done. And they will love you for it.

Jun 3, 2018 - 11:09pm
RealSlim, what's your opinion? Comment below:

No one disagrees that everything in life, professionally and personally, is a sale. What I'm saying is that I nearly choked on my drink at a wedding when some dude at a table called himself as a "risk management doctor" when he worked at State Farm as an insurance agent. Then another dude called himself a "life coach" when it was one of those cult-like MLM schemes. Even when used in the most professional light possible, it's laughable, if not borderline unethical, for financial advisors to call themselves a "financial doctor."

Jun 3, 2018 - 11:10pm
RealSlim, what's your opinion? Comment below:

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Feb 20, 2019 - 9:03pm
zeejus, what's your opinion? Comment below:

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Feb 21, 2019 - 10:45am
AMInPhase1, what's your opinion? Comment below:

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