The fear that online advice platforms will eliminate the need for the flesh-and-blood advisor is overblown. But the fact they will drive down the value of an advisor’s advice is not. The pricing pressure has hit the custodians, the exchanges, the retail side and the tech vendors, but it hasn’t hit advisors yet, some say.
We all know the popular online advice platforms that have been around for a few years: Betterment, Personal Capital, Wealthfront, etc. But new algorithm-based platforms—such as Financial Guard, Quovo, and NestEgg Wealth—are arguably better at holding advisors accountable than many of the earlier iterations. With these platforms, clients can see all their accounts in one place, so if they’re using a full-service advisor, it will highlight how much they are paying in load fees. Users also get feedback on how much money they lost by trading and how much money they could’ve had if they had been in index funds instead of high-fee mutual funds.
Rather than giving into the threat of online advice, advisors can look to these platforms to improve how they communicate with clients, via iPads, digital portals or virtual messaging. Firms without portals where clients log in, get individualized returns and research, will be the dinosaurs. The era when an advisor will deliver quarterly statements to a client and go over them in person is fading. Clients will have access to their portfolio performance all the time, in real time.
The growth of direct-to-investor platforms, such as E*Trade and Schwab, are already outpacing that of advisors. Between 2008 and 2012, direct-to-investor assets grew 16 percent, versus an increase of 9 percent for advisor-intermediated assets, Cerulli Associates says.
On the one hand, fewer investors say they primarily rely on their advisor for advice, dropping from a high of 36 percent in 2008 to 32 percent in 2012, according to Cerulli Associates. At the same time, more individuals say they are willing to pay for financial advice, with the percentage rising from 35 percent to 37 percent between 2010 and 2012.
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