Q: With so many incumbents now offering digital advice, particularly the hybrid model, is the idea of robo-led disruption in wealth management dead?
There’s a lot to unpack here. First, it’s the difference between digital advice and robo. Robo investing, where algorithms control investment decisions, had little to do with advice. Having said that, the robo movement certainly woke up the incumbents to how they needed to get on the technology delivery train before it left the station.
Today you see robos scrambling to add advice, and the incumbents struggling to deliver tech that can stay online when investors need it most. Personal Capital was the original hybrid: best-in-class technology coupled with human advice.
What robos have done in the industry — delivered a simpler solution for a simpler customer — is something I actually think is part of a bigger trend of accessibility. Investors are the true disruptors today and as advice becomes democratized, they’ll continue to set the agenda and define what the industry should prioritize.
What ignited the evolution of the industry is far less important than what continues to drive it. All of financial services would do well to pay closer attention to the real needs of their clients and develop solutions and experiences accordingly.
Digital advice was born out of the financial crisis. Some editorials, noting the sustainability issues for independent robos, have recently asked, "Did robo advice come one generation too early?" What are your thoughts about this position?
No, I don’t think robo advice came a generation too early. In fact, it may have come a generation too late. Innovation in financial technology, including robo investing, has helped remove the velvet rope that historically surrounded wealth management. Think about the prior generations that could have benefited from better financial guidance and more broadly available investing platforms and sources of advice. Now, it’s easier to understand, invest and grow money — not just for the financial elite, but for the everyday investor.
Robos have done a lot to move the industry forward. Whether they have created successful, sustainable business models is a separate issue.
Do you think the wealth management industry, since 2009, has gained a better understanding of how to be online? What’s still lacking?
There has certainly been an awakening since 2009, but there’s no question the industry needs to continue to evolve the way it’s using technology in order to maximize its impact. Unfortunately, in many cases, we’re seeing wealth management companies still struggling with simply being online and live when investors need them most. That said, being online is a low bar and it’s our job to continue to raise it. Integrating impactful, progressive technology is a business imperative.
As an industry, we have an opportunity to transform financial lives by encouraging people to engage with their money. Technology is an incredibly powerful tool in this effort. We eat, sleep and breathe this belief at Personal Capital and have built our business with it in mind. As a result, our active users log in an average 15 to 20 times per month.
Personal Capital launched nearly a decade ago. We keep hearing how wealth management clients are changing. But has the client who’s been digital in the last decade changed too?
Early adopters [clients who have been digital in the last decade] inevitably have more complex financial lives today than they did 10 years ago. Marriage, children, grandchildren, aging parents, job changes, mortgages, rising income — each of these changes creates new financial challenges and opportunities. These clients are likely more tech savvy than their counterparts, but whether an investor has been digital for 10 years or 10 months, they can appreciate how technology creates a new level of access to understanding, to visibility, and to growth.
The client who has desired digital access early on has also changed in their understanding of their needs and their expectations of service. We often see when they started, they wanted a better view of their asset allocation and where they stood with all their money. Once they have the transparency into their own finances as a baseline, there’s a greater need and expectation for advisors and experts that are knowledgeable and can provide trusted advice.
Has digital advice, as a movement, propagated any industry practices it intended to disrupt?
In my opinion, being in the advice business means holding ourselves to the highest standard for our clients. When we launched Personal Capital, we decided right away to be a registered fiduciary, so users could trust our legal commitment to acting in their best interest. We didn’t want to just disrupt the industry when it came to technology, but also when it came to trust. We’ve seen some others in digital advice be so squarely focused on technology that they’ve perpetuated investors’ confusion about the difference between a broker/dealer and a fiduciary.
There is an emerging model of completely automated advice, a whole paycheck planning approach, if you will; leave it to the bots, they’ll get it done, go on and live your life. What’s your perspective on that approach?
There’s at least one major flaw with that model: Clients aren’t robots. While algorithms might be able to link individuals to certain investment profiles, they can’t walk a client through their options and consider the nuances of an individual’s situation. Algorithms can’t hold a client’s hand after they’ve lost a loved one and need help navigating next steps related to the estate. Algorithms can’t read the expression on a client’s face to determine whether they need more or less guidance. There is something innately human about advice — advice and execution are not synonymous.
There’s a lot of consultant hand wringing about what Big Tech, i.e. Amazon, will do in wealth management, and how best to respond. What’s the smartest take you’ve heard as an executive about this challenge that you can share?
Wealth management is an extremely nuanced business. Could Big Tech come in and eat the lunch of companies that are only providing technology investing and advice? Sure. But even those companies have needed to evolve to embrace the hybrid of virtual and physical: just look at Amazon’s move into storefront retail with their Whole Foods partnership.
The challenge for Big Tech would be scaling the human side of the equation effectively — transparently, strategically, with clarity. It’s a significant climb. Those of us in the industry simply need to remain focused on developing engaging technology that enables individuals to better understand their financial situation and enables advisors to provide more meaningful, impactful guidance to clients.
If Big Tech does make a move into wealth management, would you agree it’s partly because robos cracked open the door?
Big Tech is powerful enough to open its own doors. Those of us who’ve committed to marrying sophisticated, easy to use, engaging technology with the insights and emotional IQ of human advisors didn’t open the door, we created it.
