The human touch: How legacy advisers are adapting to the rise of the robo

Tim Bain, a Statesville, North Carolina-based financial adviser, began his career working at Edward Jones Investments 23 years ago by going door to door to sell products to customers. Now, Bain owns his own company, and he's spending less on gas and doing it all online. "With Facebook, I get a local audience, but it's a larger one than knocking on doors," said Bain, who is president and chief investment officer at Spark Asset Management. Bain said he's still focusing his business on a target geographical area, but tools like Facebook help him reach a larger audience within it. And being "local" -- to a point -- is important for the community-based advisory services he provides. For Bain, who promotes his business among his extended network on social media, technology has become an indispensable tool to grow his customer base. It's an example of how experienced financial advisers are increasingly using technology to enhance their human-advice product offerings. Tech innovation on the product and marketing sides is motivating advisers like Bain to adapt. "As clients get younger, leveraging technology is going to be important," he said. "Being accessible outside of business hours, through email, text or an app -- some of that is going to fall on the firms to figure out how to regulate that and monitor communications." On the product side, consumers -- particularly younger ones -- are asking for automated advice when it suits their needs. A recent KPMG survey suggests 80 percent of retail bank customers aged 18 to 34 are "very likely or somewhat likely" to consider using robo-advisers if their bank offered them. Despite these demands for digital financial advice, many in the field have been slow to adapt, with just 25 percent of wealth managers polled by PwC offering channels other than email. "Across the wealth management industry, current levels of digital adoption are chronically low. This is indicative of a sector that’s been focused on human capital," noted the PwC report. Part of this may have to do with demographics of the adviser cadre; while the median age of advisers is falling, it still skews higher at 47, according to recent research from TD Ameritrade. Advisers who have been in the business for decades have witnessed the shift from advice delivered entirely by humans to the emergence of digital offerings, and many of them are using digital advice and marketing to keep pace. "We've seen different waves of change in the industry," said Ross Levin, CEO and founder of Edina, Minnesota-based Accredited Investors. Levin, who has worked in the field for 34 years, said the rise of digital and robo advice followed two important trends that shook up the industry, including the advent of Morningstar's fund ratings, which began in the mid-1980s; and the move toward adviser compensation based on fees rather commissions, which began to take hold in the 1990s. They're changes that Levin said influenced the way he approached his work; in particular, he decided to focus on bigger-picture financial advice that robo-advisers sometimes struggle with, while speeding up his responses to one-off questions using technology. "You have to separate the fast things, like investment reporting," he said. "And then there are the slow things, things over the years RIAs have been good at delivering -- it's not just determining how to set up an estate, but the discussion whether it's a good thing for [children] to inherit that money and what they need to do when they get it." Levin likens meetings with clients to big family gatherings where financial issues can be discussed in a holistic way. Despite his preference for in-person meetings, he said he's invested hundreds of thousands each year in technology, including tools that allow his staff members to do retirement earnings projections more quickly. Still, he concedes he's not an early adopter when it comes to technology. Some advisers are assessing how they can add digital advice to improve their human advice offering. For instance, Bain has invested in an account with risk-profiling platform Riskalyze, a system that gives each client their unique risk score and can be used to match the investor with a portfolio. He's also partnered with CLS Investments, an SEC-registered RIA that's developed a robo-adviser for advisers. "We won’t ever compete with pure robo-advisers on price, but we can become more efficient to improve our value proposition," he said. Summit, New Jersey-based Tradition Capital Management has developed its own in-house robo-adviser (Building Benjamins) but differentiates itself by making available different types of assets many robo-advisers don't offer, including private real estate and reinsurance. "Because of our familiarity through our legacy business, we are able to offer those types of products," said Michael Ciccone, associate vp. Others are focusing on a combination of digital and human advice, with the goal to tailor product offerings to different generations. "Baby boomers want to delegate and want human interaction; the Generation X want a hybrid, or a combination of human interaction and tech; and the millennials want a pretty tech-heavy experience with limited human interaction," said Paul Pagnato, who spent 19 years at Merrill Lynch and founded his own company six years ago. His firm, PagnatoKarp, will offer its own in-house robo-adviser next year, which he said will be priced to compete with many online-only robo-advisers on the market. "Fintech is expanding rapidly, and artificial intelligence is going to play a much bigger role in financial planning and advisory services," he said. "It's critical for an adviser to utilize that and take advantage of that as opposed to fearing it." Amping up digital product offerings to complement the human interaction also involves giving customers electronic dashboards of their financial lives and PFM tools as well, notes one analyst. "The idea of not having digital capability is no longer an option," said Joe Anthony, president of Gregory FCA, a marketing firm that helps brick-and-mortar financial advisers move to digital channels. "Having [only] mint.com to serve as a client's PFM tool is gone by the wayside -- an adviser-sponsored portal is good thing, whether it's account aggregation tools or the ability to see your retirement accounts stacking up against how you're paying off your debt." The challenge for financial advisers is to meet expectations of customers who are demanding fees comparable to robo-advisers (typically less than 1 percent of assets under management) and a seamless customer experience. It's that personal customer experience that legacy providers feel is their biggest selling point. "It is my belief that while investors under 30 may be more likely to be 'do-it-yourself' investors, there will come a time in their investing life cycle when they will want a more personal relationship," said Bain.  "Advisers can add value to the relationship by going beyond asset management. That to me is the holy grail for our business going forward."