Relax, retirement plan advisors—robo advisors only have a fraction of a percent of defined contribution assets.
While it might elicit a sigh of relief from those advisors not technologically up to speed, robos are nonetheless coming on strong.
That was the message from a breakout session at the Morningstar Investment Conference in Chicago on Thursday entitled, “Evolution, Not Revolution.”
“The reason is robo advisors are mainly going after Gen X and Gen Y, and not baby boomers who have all the money,” noted Morningstar moderator Nicholas VanDerSchie at the discussion’s outset. “But they will eventually gain mass market appeal; they charge an average of 25 to 30 basis points for their fees, which is a fraction of what traditional advisors charge at an average of 100 basis points.”
Each of the panel participants seemed to agree that robo advice (and hence technology in general) will enhance, rather than replace, the advisor’s role in the client experience, which was reflected in the session’s title.
“Robo advice is a disrupting factor in financial services,” noted Tricia Rothschild, Morningstar’s head of Global Advisor Solutions. “But it’s a pendulum swing. We might wear a Fitbit but still need a trainer at the gym, especially for ‘complex’ cases. Mass technology will work initially, but as you go up the spectrum, advice will become more complex and will need to be more customized.”
David Lyon, president of Chicago-based Oranj, a digital advice provider that advisors can use within their business, said it’s all about the correct allocation of resources.
“Every advisor knows that a huge amount of prospecting must be done to get that one client,” Lyon explained. “We would spend all this time doing it and then asking ourselves why clients weren’t coming in to see us. It’s because we ask them to gather all this information, which isn’t pleasant and doesn’t make for a great client experience.”
Eventually, he suggested, every advisor has to ask themselves what they want to be and what they are good at; are they a relationship manager, a business owner or something else entirely.
“They then have to decide whether to build or buy and how either will fit with their legacy systems, which is tough to do,” added Kyle Ryan, head of Advisory Services at Denver-based Personal Capital.
Rothschild agreed, and pointed specifically to managed portfolios, which shows defined-contribution participants do better when invested in the product.
“Morningstar offers managed portfolios,” she concluded. “You can choose the allocation yourself, or utilize [through technology] our 100 analysts to help do it for you.”
See Also:
- Vanguard Activates Robo Advisor for Retirement Plan Participants
- The Robo-Advice Market Will Reach How Much In AUM?
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
