Automated Client Service and the Future of Advice

The emerging question of the day is how to combine human advice with digital technologies that make the basics of investing cheap and easy.
PA-020022 OSC2 Fintech-AI_Philip Lindeman-web

Art by Philip Lindeman

A decade ago, the debate over robo advisers and whether they would replace human advisers in the investment management industry was still raging. Reading the headlines back then, it sounded like doom and gloom for anyone who made their living giving investment advice.

Now, that debate is long gone and a new understanding has emerged: Investors—specifically high-net-worth clients—will always want and need a human adviser, especially when markets are volatile, experts say. The new question of the day is how to combine human advice with digital technologies that make the basics of investing cheap and easy. And how can companies provide human advice at scale?

Scale and the Human Touch

Across the advisory industry, the rise of the hybrid model shows that both pure-play robo advisers and established asset managers are exploring these questions. Many pure-play robo advisers—i.e., those that do not employ large teams of human advisers in their client service models—have partnered with larger financial institutions to make customer acquisition easier and provide specific forms of advice via humans.

Scalable Capital, for instance, partnered with BlackRock in 2017 to help BlackRock’s UK workforce manage its personal investments. Similarly, a large number of big-name investment managers have started or acquired their own robo advisers. Vanguard’s Personal Advisor Services, launched in 2015, is now the largest player in the industry with $220 billion under management. New investors get to speak with a human adviser when they open an account with a minimum of $50,000.

Zaniyar Sharif, managing director at Redesigning Financial Services (RFS), says the industry is in a period of evolution.

“In recognition that they need to provide a human touch, robo advisers are experimenting with how to serve a lot of clients with a few financial advisers, for instance in call-center type models,” he says. “The market is tough. We’ve already seen some robo advisers morph into antithetical trading platforms to find alternative sources of revenue.”

A report by RFS on hybrid advisory models said the ubiquity of robo-advice offerings, together with the automation of middle and back offices, is reshaping the value proposition. The report suggests leading firms will seek to “identify and invest in other ways of differentiating themselves to stand apart from competition, in particular through deeper personalization of customer offerings.”

Partnerships Are Key

As the realities of the new market set in, experts say robo advisers need to continue to partner with other groups to make customer acquisition less costly and provide a more holistic offering, for instance through better investment content or with additional products and services, such as insurance.

David Trainer, the founder of New Constructs, which bills itself as an investment research firm specializing in unconflicted and comprehensive fundamental research, says robo advisers should be offering better equity research to help their customers invest with more intelligence and compete with professionals.

“When robo advisers got their start, we had rising markets,” Trainer says. “It was so easy to pick stocks back then that a robot could do it. In a more challenging market, I think that assumption breaks down. It’s difficult for pure robo advisers to work as well as everyone expects them to. They need more investment intelligence to do that.”

Trainer’s company—which he refers to as a “robo analyst” rather than a robo adviser—performs and provides fundamental stock research in an automated fashion, using algorithms to parse company filings and crunch data. He argues that small investors in particular have a right to more expansive and better investment research than they are getting.

“Robo advisers’ assets under management [AUM] have been stuck at certain levels,” he adds. “There is only so much of the world that is going to trust that the robot can figure it all out. Because it can lack any kind of intelligence about individual securities, a robo adviser is the perfect partner for a robo analyst. A robo analyst can help the robo adviser scale to the next level of AUM, because it can provide human-level sophisticated analytics via machine.”

Banking-as-a-Service Providers

Christine Schmid, head of strategy at additiv, an “embedded wealth” or “banking-as-a-service platform” provider in Zurich, Switzerland, echoes that sentiment. She says technology-based companies have a role to play in lowering the cost of advice, much like they helped decrease the cost of financial transactions over the past decade.

“Bigger banks have already decoupled the price of advice from investment products,” she explains. “Now it’s time for the new players in the market to bring down the price for advice through data, analytics and artificial intelligence [AI].”

According to Schmid, in the same way a third-party payment transaction provider gives a retailer access to the ability collect a bill just when a customer wants to pay it, for example during an online checkout, banking-as-a-service companies such as additiv can give an adviser’s client access to a digital wealth management solution “at just the right moment for the client.”

“What you have seen on the payment side, we are opening up on the wealth side, going beyond the traditional channels,” Schmid says.

A report by additiv says this model, enabled by tech-based wealth solutions, makes it possible for asset managers or independent financial advisers to extend their offerings. According to the report, independent financial advisers can work with firms like additiv to go further than automated investment advisers, for example by offering advisory services at scale within the context of a big company’s financial well-being platform.

The report, published in September, estimates a revenue potential of $100 billion in fees for wealth managers, based on an addressable market of $33 trillion in assets globally which are not professionally managed right now.

An End to the Pure-Play Era?

Experts agree that robo advisers have played an important part in the evolution of investment management, having first helped make investment advice more widely accessible and now enabling companies to strike the right balance between an easy digital investing experience and human advice.

Adam Dooley, founder, chairman and CEO of Belay Associates, a global investment firm focused on the financial services industry, says, nonetheless, people still want the human adviser touch.

“I’m of the view that there are no more pure-play robo adviser startups that plan to manage money or attract clients that are older than 30 or 35 years old,” he suggests. “If they’re out there, they’re not having much success, because people need the advice.”

Besides helping drive down the cost of trading, Dooley says, robots have helped the entire industry by ushering in a whole group of younger investors who were not active, teaching them the value of saving and investing, and familiarizing them with the terminology and the different options.

“Now, when a young investor approaches a human adviser, they’re more knowledgeable,” Dooley says. “Robo advisers have evolved from digital advisers to digital advice platforms. The most leading-edge firms have incorporated digital advice into their service offerings because clients want to be able to speak with their advisers and go online and do basic transactions themselves or inform themselves.”

Similarly, for independent plan advisers and smaller wealth advisers focused on strong relationships with their clients, the digital offering is a must.

“If they want to grow and bring in new clients, the user experience from a digital perspective is critical,” Dooley concludes.

Editor’s note: This story previously appeared on as ‘When Robo Advisers Struggle to Scale.’