Learning from Robo-Advisors

By Raef Lee, Managing Director, SEI Advisor Network on Wednesday, April 9th, 2014

The following is a guest blog post from the SEI Advisor Network. View original post here

I’m a great believer in learning from the competition. For a firm to get going, you must have confidence and drive. But when the firm has grown, it is very easy for the confidence to turn into complacency and the belief that the current model will always produce results. The best way to remedy this affliction is to look outwards and check out what others are doing in your industry. Once you have seen the competition in action, it is easy to incorporate some of the best ideas into your plans for future.
One group that we can learn from is the robo-advisors. I was one of the first to analyze the robo-advisors in September 2013. Since then, much has been written about them, mainly in terms of “Will they succeed?” But my focus here is on what advisors can learn from them.
Clear value proposition
Robo-advisors typically do a great job of explaining their value proposition. As their office is their website, it is their well-designed landing pages that proclaim their differentiation. Check outBetterment’s homepage: Build wealth, Save time, Save money, and Invest better. Now quickly: State your 30-second value proposition/elevator speech. Is it as succinct or pithy as Betterment’s?
Creating a clear value proposition for an advisor is not easy. But it is the key building block to the success of any firm. Checking out robo-advisor websites may give you some ideas on how to sharpen the language of your value proposition, which may in turn lead you to drill deeper into a more comprehensive review.

Once you sign up with a robo-advisor, you will start to receive e-mails weekly (typically). These e-mails are well crafted, full of information, are aimed squarely at the target audience, and hammer home the value proposition. As we all know, marketing is not the strong suit of most advisors; but it is the strong suit of robo-advisors.
Personal Capital is a good example. Their blog shows that they are aiming at high net worth clients. Topics include where you should retire, average 401K balances by age, and market commentary with a strong point of view.
Look at your outgoing marketing pieces and see where you can punch it up.

Focusing on youth
Who is the most underserved segment for advisors? Those aged 20 to 45. The so-called Gen X and Gen Y. Why? Advisors have generally assumed that this group has not acquired significant assets. However, this is also the group that is accumulating money and over the next 20 years will become a wealthy group, either having earned it themselves or having inherited it from their wealthy Boomer parents. This is one of the key groups that robo-advisors are targeting. The Gen X / Gen Y characteristics of technology-savviness, skepticism of authority, cost-sensitivity, and autonomy make robo-advisors’ services attractive to them.
Advisors should learn from this and start targeting the same segment with tailored services. A brand new initiative, XY Planning Network  started this week by industry heavyweights Michael Kitces and Alan Moore could start to help sell to Gen X / Gen Y clients.
If you go to any robo-advisor site, the fees are laid out for all to see, and are simple to understand. If you go to the LearnVest pricing page, you see their packages laid out for you ($19 / month for each different package, plus setup fees). This allows an investor to jump to swift action. After all, it is not much of a financial commitment.
It is inevitable that the lower robo-advisor fees will affect the way advisors charge. Bob Veres in a recent article laid out his thoughts on the future of advisor fees. It could be time to review your own fees, see if they match your services, and are simple for a client to understand.
We’re not going to take it anymore
Usually advisors, as a group, are focused on the job at hand, and don’t pay much attention to the competition. However, robo-advisors have galvanized a couple of industry players to take a stand.

The first is Bob Curtis of MoneyGuidePro, who has been arguing with robo-advisors on stage at a couple of conferences recently. The second is eMoney, who has created a well-crafted video to lay out its thoughts. In retaliation, robo-advisors have a twitter account of their own (@RoboAdvisor) where you can read their robo-advisor tweets.
Take note
Robo-advisors are to be learned from, rather than being feared. The areas to focus on (in addition to the points made in my last blog post) are marketing, the youth segment and fees. So, take half an hour, and go out and check out the competition. You may learn something.

Raef Lee is the technology contributor for Practically Speaking and also serves as a managing director for the SEI Advisor Network.

You may also be interested in:

5 Ways Robo-Advisors Will Change the Way Advisors Work (Blog post by Raef Lee, SEI Advisor Network)

17 Smart Recruiting Tips  (Whitepaper)

Generational Wealth Transfers: How to Keep Your Clients (Blog post by Kellan Finley, Managing Director, Insurance Decisions) 

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