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How the new RIA competition is akin to the cup-holder dilemma for automakers

Many robo-innovations are superficial but are nonetheless looked for by investors as a sign of substance

Thursday, September 18, 2014 – 6:18 PM by Brooke Southall
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Cup holders, like robo-capability, matter whether or not they should.

Brooke’s Note: Like everyone, I have tried to identify why automated advisors are perceived as a threat to RIAs despite the fact that they don’t seem to be very threatening. My takeaway from the RIABiz webinar yesterday was that robos are in fact totally threatening … and totally not. David Armstrong, our advisor on the call, said he has certainly never lost a prospect to a robo-advisor. Nonetheless, his clients are keenly aware that there are sweet robo ways to view their assets that instantaneously inform them of where they are on their way to their goals. It reminded me of the cup-holder issue — and how it’s one Tesla ignores at its peril.

Our RIABiz webinar, “How RIAs Can Swim with the New Competitive Sharks,” covered the gamut of RIA competition back to Big 5 accountant firms to Merrill Lynch’s first efforts to look more RIA-like. See: Is Merrill Lynch taking its more RIA-like training program another step forward with Racquel Oden’s promotion?.

It took a look at the phono-advisors, national offerings like Schwab’s, and the wirehouses’ new look.

Seemingly irresistibly, the discussion kept circling back to robo-advisors — exactly where my mastermind plan had intended for it not to go. See: Why I find the term 'robo-advisor’ objectionable and unhelpful.

Must have

And though it went against my sense of journalistic flow and control, I gained a new appreciation for the new advice model’s psychological hold on clients thanks to webinar participant David Armstrong of Monument Wealth Management. He made it clear that he can feel the competition in his bones. Seeing real-time account balances and how they fit the financial plan in an aesthetically pleasing way is an advance that clients now take as a birthright. Even clients unaware of robo-advisors are often quite familiar with Mint.com and wonder how a web freebie is so much better than the advisors they pay thousands of dollars to.

It called to mind an anecdote an advisor told me the other day about how much of an edge some automakers have achieved by paying close attention to the number and quality of cup holders in the cars they make.

So I went looking for backup and found this article: The psychology of cupholders.

The tongue-in-cheek tone of the piece is captured in this block of prose:

“The new Infiniti EX is an intriguing example. By most standards of logic, this is not a great vehicle. It’s a less stable G35 for more money or, alternatively, an FX with less room. Get inside the thing and it doesn’t seem like a bad idea at all …. It offers everything the savanna does …. Layers of leather are not vegetation, but certainly natural. The car gives you an extended view from a safe position. There is an organic flow that feels orderly and cozy. There is no trickling stream in the car — the rational brain would kick your lizard brain and shake its head within a head — but there’s a cup holder for everyone. Front and back.”

Always in reach

The article is followed by a long string of reader comments trying to puzzle out why such a seemingly trivial add-on matters, but this one struck me as authoritative and telling:

“[Cup holders] are a sign of good design. My 06 Civic SI has 2 ginormous cup holders between the front seats, with 4 spring-loaded 'tabs’ in each cup-area to grab any item you insert and hold it steady. No coffee spillage, no rattling of bottles on plastic. And it’s centrally located, damn near impossible to break, has a slide-back lid to hide things in there, and is generally well thought out.

“Compare that to the cup holders on the BMW e90 (2006+) .... unstable, easily breakable, not 'at hand’ (you have to reach for it), not large, items rattle and could easily fall out. And all of those individuals buying the ultimate driving machine complain about it. Why? Because it detracts from the experience. It’s sub-par. A lack of cup holders signifies an unwillingness to adapt to modern desires. Poor cup holders show that the designer doesn’t think your cup holders hold any special place in your heart.”

Custodians to the rescue?

Apropos, the webinar’s co-panelist, Brian Hamburger, chief executive of MarketCounsel, was quick to point out that advisors can easily gain access to the aftermarket robo-presentation today without much ado or much, if any, expense. See: Why Joe Duran is dead wrong on 2015 marking the end of the Golden Era of the RIA.

It’ll be interesting to see whether custodians take this statement-reporting burden off RIAs making it standard — just like the misleadingly modest cup holder that delivers that first delicious infusion of Peet’s in the morning.

Mentioned in this article:

MarketCounsel | Hamburger Law Firm
Consulting Firm, Compliance Expert, Legal Services for RIAs
Top Executive: Brian Hamburger

RIA Publication, Blog/Social Networking Tool
Top Executive: Brooke Southall

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