Financial advisors help clients find a balance between happiness and well-being.
Happiness is a messy, personal and difficult-to-define goal, but it’s critical for every client. Well-being is tidy, calculable and clear. Investors love it, because it’s easy to automate. 10,000 steps = fitness. Show a counter.
As automation fever seizes wealth management, it’s silly and irresponsible for advisors to cede the conversation about the future of the business to robo-entrepreneurs, their cheerleaders and financiers. They have a fiduciary responsibility to shareholders that's more easily satisfied pursuing well-being than happiness. Well being is great. Cost effective S&P exposure is great. Inexpensive car insurance is great. However, we advisors have a fiduciary responsibility to real people with real dreams. We promised the right balance of well being and happiness, and that is awfully tough to automate. Consequently, it's important that we drive the discussion about the future of wealth management rather than wait for solutions. Otherwise we may find ourselves unable to deliver the service to which we have dedicated so much of our lives.
Isn’t well-being enough?
Not even close. The numbers bear it out. Purpose-specific, "validator," advice ("Can I really afford this house?") has grown to about 48% of the market. And you know what lost share? Not full-service advice. Self-serve: Robo. The "disruptors" managed to ride a massive, long term downdraft in spite of noisy commercials fueled by piles of "smart" money.
If well-being were enough, that self-serve share dominate. It’s shrinking because people are looking for more.
People seeking advice for single issues without (necessarily) a long-term advisory relationship
Online services to pick an appropriate ETF
Traditional client-advisor relationships
WealthManagement.com: Here Come the Validators
10,000 steps each day won’t fight off a Big Mac--or even a big soda. "Can I really afford this house?" isn’t a request for an online budgeting app. A person who’s already done some research but remains concerned is asking, "Can I feel happy about buying this house?" There is a good reason that more self-directed advisors are seeking advice, even as the self-directed tools improve.
Advisors know this.
So why is everyone talking about a "robo" future?
It’s easy to grasp. Just put in your numbers, and it tells you the answer. Finance is just numbers, right? Once you've pulled distilled, simple product from the nuanced service, it's easy for everyone to build a website. Enter the carnival barkers. It's all a commodity anyway. We've all played Pit, right? Of course there’s a lot of noise.
For automation to address the more complex issues, it requires participation from people who understand those issues. That’s us. Otherwise, all we’re going to get is better asset allocation machines.
Why should I care?
Our clients care. The new tools look cool. They perform some really useful, wellness-oriented tasks in compelling ways. But in some cases, they’re creating their own skewed versions of reality that damage the entire industry.
First, asset managers are asset managers. If they improve their user interfaces and drop their prices, we all win. That’s great. So frankly, kudos to BlackRock, Vanguard, and others like them for their great robo products.
Second, custodial platforms are platforms. They provide whatever product we, and our clients, demand. So again, kudos to Pershing, Schwab, Fidelity for their contributions to the robo cannon.
So far so good.
But the folks who liken investment management to objective financial advice are selling snake oil to sick people. Betterment’s Director of Behavioral Finance and Investing provides a battle cry for this movement in his post Good Design Beats Investor Education. Investor education, he asserts, is "usually unproductive," because in spite of the industry’s best efforts, "The average investor still underperforms the S&P 500."
In other words, because the market is a market--with winners, losers, averages and costs--regular people are too stupid to learn about their own finances.
He then lashes out at advisors comparing them to "a (grumpy) driver" navigating from dead reckoning.
No data or logic, just straight ad hominem dope. Retail investors are idiots. Advisors, who might take umbrage, are dinosaurs. So who will save us all?
His product defies analysis or question. Data that describe his product would blow customers' tiny, angry minds. ETF performance numbers are, "a perfect example of investor education...hurting more than it helps." Handy.
It's old fashioned, cynical disdain for the customer. It might appear shiny, new and revolutionary to its peddlers, but every generation brings a new generation of brokers. These guys are why many of us became advisors.
The good news!
We have an opportunity to win, not just survive.
- Real advice-- the service we created-- that transformed the industry in just two decades. We can continue that revolution.
- Generations X and Y have told us (to the tune of nearly ⅔) that they want advice, not algos, when they’re messing with happiness.
- Regulatory changes support independent advice--not just product sales.
In short, we can seize this opportunity to do well by doing good, and the steps are simple:
1) Work together.
Independence and competition are great. They demand excellence. However, independence and competition are a mirage if we all sell Kraft Singles. It's still Pasteurized Prepared Cheese Product. That’s what’s happening.
Why are we suddenly acting like we cannot serve smaller, upwardly mobile customers? Why are we suddenly acting as if all financial knowledge begins and ends with the S&P 500 and Treasury ladders? Why are we racing to the bottom on fees? Why do we value our time so cheaply?
Regulation isn’t an excuse to disregard the look in a client’s eye. It's not an excuse to sell short our own futures. It’s a catalyst to demand more for ourselves and our clients. "Independent" doesn’t mean "alone." Altogether, we’re a massive force to be reckoned with. They’ve got the guns, but we’ve got the numbers.
2) Change the game… again.
We did it once. In the 1990’s, we left the wirehouses and commissions behind, and built fee-based, independent advice. We grew it from a blip to over 60% market share. Now we need to listen to our clients and keep innovating. People still want advice, not product. Now they want to buy it differently. Transportation, entertainment, hospitality--virtually every other industry has learned this. We must too. We need to weave ourselves into clients’ and prospects’ lives as they live them today. We need to answer questions when and where they need us.
There are people who are working to help us achieve these goals. Market76 certainly is. Even many of the big financial institutions are game. The demand is huge, and businesses want to make money! However, we need to prove our ability to adapt to change and espouse a compelling vision of the future. We need to provide our unique, subjective, messy synthesis of happiness and well-being when, where and how people want it. We owe it to our clients to drive the conversation.
For those of you who skipped to the end:
We advisors have an amazing opportunity. Regulation demands objective advice. $30T of wealth is about to pass to generations that demand objective advice. Technology enables independent service providers to band together to provide better service, for better prices, in a model that consumers love. And we have worked and sacrificed to position our businesses to flourish in this event. We were right. We did right.
We also have an amazing responsibility. We have to use our strength to deliver the value we promised our clients. We promised to protect them. We promised to protect their children. We promised to help them use their money to pursue happiness, not just survival.
We can do it. We just need to work together and keep innovating. We’ve dedicated our careers to this. We aren’t going to quit with the finish line in sight.
I’m going to be meeting with advisors all across the country this summer-- sharing their stories and their visions for shaping the wealth management industry to benefit the customers— and incorporating the best ideas. In a couple months we will release new software that helps advisors provide sophisticated, legally and ethically responsible advice to all types of clients. We are going to help automate the process of getting people to great advisors and advice rather than throwing wads of money at another effort to replace complex thought with beautiful packaging wrapped around Pasteurized Prepared Financial Product.
If you’d like to chat or just follow along, subscribe to our newsletter or shoot me a note.