A difficult time is forecasted for the financial advisor who focuses on retirement plans. We’ve seen and talked for a while about the warning signs: 401k consolidation that will lead to pushing the broker aside. Last month, Vanguard announced plans to launch a new robo-advisory service called Digital Advisor that aims to appeal to DIY young investors and eliminates entirely human financial advisors. It’s further proof that the retirement market is evolving at a rapid pace and those who refuse to adjust and pivot will be pushed out of business.
The robo-advisor market has been growing exponentially since as early as 2010. There are now more than 200 robo-advisory firms with assets under management expected to top $1 trillion this year and projected to grow to $2.5 trillion by 2023, according to Traders Magazine. These automated online platforms use algorithms and pre-set equations to provide customers with sterile financial advice. Most digital investment platforms claim this new model offers financial advice at lower costs than traditional human advisors.
We’ve long known that financial literacy is a real problem in this country and most people find investing difficult and complex. But, how well can a computer know an investor? Well enough to advise them on big, potentially life-altering decisions?
Coming out of the COVID-19 pandemic, plan sponsors will be focused on restarting their businesses and will likely have less time to figure out retirement plans. We also predict that these plan sponsors will be looking for more ways to outsource as much fiduciary responsibility as possible. Employers will want more service, protection and transparency in investment decisions. They aren’t likely to get that from the 2020 version of robo-advisors but the one-stop shopping allure of these offerings may distract legitimate questions about performance because employers, pressed for time and strategy, will be looking for an easy solution.
Here are a few steps advisors should be taking now to buttress their value proposition to clients:
- Actively define your role in the retirement plan by knowing what level of service you want to provide and can be the best at. If you are not a 3(38) , partner with one that can provide a higher level of service
- Provide participant services so clients may have a holistic overall experience
- Embrace your advisor status as a conduit of information and communicate often with your client and their employees. Your role is part educator and part confidante.
- Educate yourself. The investment landscape is constantly changing and evolving so be certain you are well educated to bring to your client ideas and solutions to remain relevant and add value.
We should note that while the robo-advisor market is growing rapidly, these platforms still only represent a fraction of the $89 trillion of global assets under management.
Yet, as we’ve seen over the past several years, robo-advisors are here to stay. What does this mean for the traditional advisor community? It means you will have to justify your existence. It may sound harsh, but advisors are under fee pressure and scrutiny now more than ever to explain the benefit they provide to their clients. Advisors starting now have to differentiate themselves. Intangible benefits like peace of mind and 3(38) partnership will tip the scales for the smart advisor in this kind of environment.
At Granite Group Advisors, we help advisors work harder for their clients with a suite of customized solutions, simple integrated fees and solid co-fiduciary protection. Contact us today to find out how we can make you more successful.