Hi I am Arjun Parthasarathy speaking and this podcast is on “Financial Advisors, Here’s How to Survive the Onslaught of Robo Advisors”
As the Founder of an Online Financial Advisory Firm, I am seeing that technology is helping us deliver financial advise to individuals in all parts of India and the world. The cost of delivery too is extremely low and helps us charge extremely low fees for our advise. In numbers, our advise is as cheap as 0.05% to 0.1% of the Investible Funds of an individual depending on the size of the Investible Funds and the services to which they are subscribing.
While we are not Robo Advisors, we provide Human Touch for our subscribers, the advent of Robo Advisors is lowering cost of advise substantially. The lower the cost of advise, the higher the threat to existence of traditional Financial Advisors who have a low client base and are unable to scale up sufficiently to make up for lower fees.
Similar to any other industry that is disrupted by technology, Financial Advisors are also facing huge disruptions to their business. Future survival of advisors will depend on how they position themselves going forward. Advisors who do what they are doing now, which if not different, are sure to become extinct soon if they do not change.
What should traditional advisors do to survive and succeed in the face of technological disruptions. First and foremost they should relook at what they are doing at present and see if Robo’s can easily replace them. If Robo’s can do what traditional advisors are doing, faster and cheaper, then its definitely time to change.
Financial advisors should first check their value addition to their clients. Where does value addition come from? Real value addition, which Robo’s may not be able to replicate, is to provide highly knowledgeable advise to clients. The advise should be completely independent, i.e. the advisor has to present to the client his or her reading of where markets, economies and businesses will be going forward and based on that reading, client’s investment should be suggested.
The advisor will also have to continuously keep the client up to date on all the factors that affect the client’s investments. Regular independent reports generated by advisors will go a long way in making the client know that he or she is being looked after well. Clients, when they invest hard earned money based on an advisor’s advice, want to constantly know if their investments are safe.
Advisors should always keep the client in front of them, which means shunning higher commissions paid out by product manufacturers if the product is not suitable for the client. Advisor’s should also educate clients on their investments and explain to them clearly why an investment is being recommended, what is the cost to the client for making the investment, risks involved and how they will tackle the risks if they come to the fore threating the capital of the client.
Advisors should also communicate effectively with the client and with many instant messaging services available, cost of communication is almost zero. Effective communication reinforces the client’s belief in the advisor.
Financial advisors can grow in the face of Robo Advisors but that requires effort on their part to learn and change.
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