The True Existential Threat Facing Financial Services (Hint: It’s Not Robos)
Robo-advisors matter, but not quite as much as all the sound and fury surrounding them may lead you to believe. Digital advisors, as they prefer to be called, are all the rage, evidenced by their daily media coverage. But in reality, robo-advisors are the Y2K of the investment industry: a threat in perception, but not in actuality.
The simple fact is the concept of automated asset management platforms has been around for quite some time (see Financial Engines) – almost as long as digital interfaces have existed. More importantly, the biggest and baddest robo-advisors making all the media splash collectively manage less AUM than any five firms from the Barron’s top 100 list.
No, the existential threat to the financial services industry is not robo-advisors. It’s the challenge of recruiting the next generation of professionals. These are the people who will bring in new clients and keep firms running on an individual level, but they’re also the people who will innovate and continually reinvigorate the industry as a whole.
Without Advisors, There Is No Advisory Industry
Fewer and fewer young people are showing interest in pursuing a financial services career. In 2013, Cerulli found that 8,600 advisors will retire from the profession over the next thirteen years, but for every eight who leave, only three younger professionals will replace them
But it’s not just the financial services industry. Many professional services in traditional verticals are seeing the next generation of professionals pass up opportunities to work in technology or industries known for adopting technology and fostering pride in solving hard problems with cutting edge solutions.
The brightest minds of any generation will always want to work on the cutting edge and be part of something bigger than themselves. They want to see a tangible impact from their work in people’s lives and be taken seriously because of that impact. They value the efficiencies of technology, data-powered automation and intuitive experiences, because they know their skills are not best utilized on menial, repetitive tasks.
Ambitious people of any generation are not attracted to industries known for being slow movers. Today they gravitate towards places Tesla, SpaceX, Google, Facebook, and Palantir. They want to be at the next Uber or AirBnB, disrupting industries with groundbreaking technology. It’s why IBM is reinventing its brand with Watson and why Microsoft is investing more than ever into artificial intelligence.
Whether or not robo-advisors replace financial advisors is up to the advisors. Many firms might benefit from offering a white-labeled robo-advisor product, but there will always be investors who want more than automated investment management and tax-loss harvesting.
The true threat is not that robo-advisors will take over the industry, but that the industry will shrink as veterans leave and the next generation opts for other lines of work.
Fidelity’s 2016 Future Leaders Study recommends the steps advisory firms should take to attract and retain successful professionals from the next generation. They list “harness technology effectively” as a primary solution to the problem and agree that “young, successful advisors view technology as integral to their practice, and expect their firms to adopt and use the latest technologies.”
This is because young, successful people view technology as integral to their lives.
The purpose of adopting technology is not so financial professionals can combat the robo-advisor. Rather, a forward-thinking business that embraces technology is a place where young bright people want to work.
Without broad technology adoption, the financial industry will be unable to add as much headcount as it loses, continually diminish, eventually consolidate, and make room for a new norm in which the industry is commoditized and run by fewer firms and, yes, automated investing platforms.
Taking Steps to Attract Bright Young Professionals
Consider a day-in-the-life of a new colleague at your firm – a recent graduate on the path to becoming an advisor. If a smart ambitious person ready for a challenge has to spend days on menial tasks like updating legacy CRMs manually or writing dry newsletters and sending hundreds of emails and letters, what is the likelihood he’ll opt to stay at a company that undervalues his talents and is too entrenched to even update a CRM or email tool?
A firm that makes the right choices in technology is doing a lot more than making vanity improvements to a website or a mobile app. Intelligent, automated technology lets veteran professionals and new hires focus on strategy and human relationships efficiently – from speaking with clients to studying for further certifications.
Small changes can make a big difference. Phil Henry of Henry Wealth Management, for example, is a thirty-year veteran of the industry and though he’s built a successful firm using his preferred methods, he knows that new entrants to the industry expect something different. He’s made changes like implementing Vestorly’s intelligent, automated communication software so that technology, instead of people, curates personalized communication for his clients and reports back the actionable results.
“I’m not trying to attract a huge firm, but I want to give new hires the tools to help them to jumpstart their careers, so they don’t have to do it the way I did it in 1980. Attracting a couple young people is big for a profitable firm.”