How RIAs can compete with super-RIAs, robo-RIAs and the 'phono'- and faux-RIA market of 2015 and beyond

Wow, this comment ended up being long. I need an editor. :-) That said, many of what Brian’s & David’s have to say is spot on, with a couple of modifications. So I’ll pile on here.

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When I re-joined Schwab in January of 2006, I took over Client Reporting for Schwab Advisor Services. At the time, I figured my products—statements, trade confirmations, tax reports, portfolio accounting & cost basis—would be a sleepy little backwater that nobody was really going to care about. I mean, who looks at their brokerage statements? Boy, was I wrong: in the short time I managed Schwab’s statement platform, there were at least two deals representing over $9B in AUM that hinged on Schwab’s ability to modify our reporting and cost basis platforms to provide some key information for the end clients of these advisory firms (we ended up landing both firms, and I still need to figure out who in sales I need to thank for bringing me to the Bahamas as part of their annual junket).

I relay this story because it’s easy to lose sight of how important the end-client experience is for your investors. Your value proposition isn’t solely about the quality of your advice, the poshness of your office space, the quarterly sit-downs you conduct, the fancy reports you provide, or even the long-established relationships that you pride yourself in. It’s about the totality of the experience you provide to your clients relative to every other thing in their lives that has been augmented and improved by technology.

That last sentence is incredibly important, and is exactly why digital advisory represents a coming threat for RIAs (by the way, can we all stop using the term “robo-advisor?” We’re not living in a Jetson’s cartoon).

It used to be that if I wasn’t feeling well, I had to call a doctor. If there was something wrong with my car, I would have to call a mechanic. If I was interested in selling my home, I had to call a realtor. There are countless examples: paying bills involved writing checks and putting stamps on envelopes, depositing money meant making a trip down to the Schwab Employee Branch, buying a book involved hauling my cookies over to a Barnes & Nobel. The list goes on.

Times have changed. Now I can check symptoms on WebMD to sound a little more informed when I call my doctor, I can figure out what’s wrong with my car without being at the complete mercy of a mechanic, and I can price and market my home using services like Trulia and Zillow. As for paying bills? I don’t even know where my checkbook is anymore, much less what a first class stamp costs. I deposit my checks with my phone, meaning that the only reason I ever wander down to Schwab nowadays is to pick up my gal for lunch. As for shopping, amazon.com pretty much has 100% of my wallet (especially since I don’t need to do anything at all to have all the stuff I need every day for my new twins delivered straight to my door once a month).

This is the environment that we all now live in, and that every businesses operates in—RIAs included. A digital presence is becoming increasingly important in how people assign value to modern products services, across all facets of their life. Unfortunately our industry is falling seriously behind here; even the new investor-specific offerings from the current batch of RIA technology darlings like Black Diamond and Tamarac are woefully one-dimensional. Yes, the kitchen table conversations will continue to be important to a certain segment, but without a baseline digital offering you are increasingly going to look like the company still using a telegraph in the era of telephones.

Ask yourself this: of all the technology investments that you’ve made at your firm this year (you do have an annual technology budget, right?), how many of those dollars actually went to improving the digital experience that you provide to your clients? Do you even have a digital experience for your clients? Does it provide a useful, convenient way for clients to transact business with you, or is it simply a marketing channel? Are you using technology to remove any friction that exists between your clients and your ability to serve them in a predominantly digital age?

Here’s a few more questions: what are your custodians doing to help you create a unified (i.e. cross-custodial), branded, and modern digital advisory experience? After all, the retail channels of the top three custodians—Schwab, Fidelity, and TD Ameritrade—are operating in the same environment as you are; each have begun investing millions of dollars on their own nascent digital advisory offerings to ensure that they’re not outflanked by the likes of Wealthfront, Betterment, or each other. Will you be able to directly benefit from these investments to start providing real utility to your clients—rich cross-custodial reporting, cash flow and risk analysis, benchmarking, budgeting, mobile banking and deposits, bill payment, etc.? Or will your digital offering fall even further behind?

Investors—particularly wealthy investors—love to pet their money. They like to visit it, they like to see how hard it’s working for them, and they like to play with it from time to time. It’s probably why my client reporting gig kept me so busy at Schwab many years ago, and it’s exactly why advisors should be paying attention to what’s going on with digital advisory today.

Digital advice is far more than a selection algorithm: it’s a totality of modern experiences that provides clients with the same technology-enabled conveniences that they are now used to having in every other facet of their lives. The richness of these experiences are the future table takes for our industry. Get in front of this trend, or the cognitive dissonance created by what’s available to your clients online for cheap vs. what’s available from you for a pricier fee might eventually be too wide. And that’s where dinosaurs live.

Is David Armstrong really comparing providing healthcare/doctoring services to providing so-called financial advise? Certainly he jests, as that is ludicrous.

Mike,

I might have to elevate this comment to a column, a few great writerly flourishes.

Money petting must be a new category not to be discounted.

Brooke