Do you think Robo Advisors are a threat to traditional advisors?
The term ‘Robo Advisors’ is very loaded. Most Robo Advisors are actually very simple. It is a simple software that advisors have used for years. You just have key in some simple details like name, age, answer some questions relating to risk tolerance and you are done. It is not rocket science.
Robo Advisors can provide consistent advice to people at a low cost. However, they are of no help when you are dealing with complex cases like life planning, divorce, cross border planning, etc.
Do you see Robo Advisors making it big in India?
For the last 30 years, the financial services/wealth management industry is built on the AUM model where people are compensated for collecting assets. The advancement of technological advice will change the way human advisors charge their clients. I don’t think you will see the Robo Advisory market in India evolve the same way as it did in North America.
Are ‘Robo Advisors’ just a passing fad?
Technology never goes backwards. This is not a fad. Technology is going to move ahead and it is like complaining about the weather. Technology will only get better every day. The question we have to ask is how we as financial advisors make ourselves better.
Do you think algorithms can replace human judgment?
There is a system called IBM Watson. This system which understands language has defeated two best human beings in 2011 American TV quiz show ‘Jeopardy’. It passed the medical exams and is now referring doctors. Being a medical doctor is much more complex than being a financial advisor. The systems are continuing to evolve and financial advisors need to also evolve.
How can traditional advisors equip themselves to compete with Robo Advisors?
It all comes down to adding value. Advisors have to help clients emotionally. They have to raise their competency in areas that clearly add value to the client.
Do you think Robo Advisors and traditional advisors could collaborate?
A lot of Robo Advisor firms in Canada are positioning to help advisors service clients with lower wealth levels. Technology is an enabler and it threatens some of the things that we do. But it’s sometimes creates new opportunities for us in other areas. Yes, I believe human advisors and Robo Advisors can collaborate.
What benefit do Robo Advisors provide in terms of cost?
Some traditional advisors charge a percentage of AUM as fee to their clients. Ferrari doesn’t decide the price of its car looking at your income. It sells at the same price to every client. Now put that in the context of AUM based fee. If you have a young client who doesn’t have large investible assets, how do you provide him financial planning service if the only way you would be compensated is by the quantum of assets under advisory?
Unlike traditional advisors, Robo Advisors offer the same service and charge the same fee to every client irrespective of the quantum of assets under advisory invested by a client. In the US, there are articles being written that this is the end of AUM based fee model.
Which other areas can Robo Advisors enter?
You will see more capabilities around taxation. Betterment (Robo Advisor firm) just announced that they are coming up with estate planning services in Robo Advisors.
In which areas do you think Robo Advisors lack expertise?
I don’t think any Robo Advisor will offer estate services anytime soon because the market in India is complex. I don’t think Robo Advisors can offer services like cross border planning, divorce planning, life planning or provide counselling when the client acquires sudden wealth, and so on.
