What the Rise of Robos Should Teach You About Marketing Your RIA Firm

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The warning bell has already been sounded for RIAs: the financial advisory business is about to change, and not everyone will survive the transition.

What will it take for a firm to remain relevant through the digital deluge? Robo-advisors and a related crop of nimble, digitally delivered services threaten to subsume RIAs with their low-cost, high-efficiency solutions — and they’ve got their bionic finger on the pulse of the next generation of clients.

Our client, Joe Duran who is the CEO of United Capital, recently addressed it in his InvestmentNews blog, calling it “the big squeeze” on advisors, citing robo-advisors among a set of forces indisputably building momentum.  

The forecasts aren’t all so dire. Optimism rings out from those corners where talent, foresight, and adaptability are valued most. We reality-checked the doomsayers in The Invasion of the Robo Advisor (July 2014), and in the post Are RIA Firms Failing their Future? (March 2014), we shared advice on how to embrace digital strategies rather than run screaming in the other direction.

Yes, the traditional approach to advisory is headed for obsolescence. And, yes, there really is an army of robo-advisors at the gate. The mechanism for referrals — the lifeblood of RIA business — is changing fundamentally. That doesn’t necessarily mean your business is imperiled. Just don’t get too comfy, because your firm needs to rethink its marketing strategy starting right now.

The industry shake-up actually presents a huge opportunity for innovative firms to leap ahead. To thrive in the oncoming era, RIAs require two core capabilities: The will to evolve, and the ability to articulate the firm’s evolution to clients.

Articulation is crucial because even those firms with a unique story to tell won’t be easily heard. Old-school approaches to marketing have all dried up, and everyone has turned to the Internet. But the hundreds of competitors clamoring for attention at the same time creates a din above which a single voice is difficult to distinguish.

So let’s talk about stepping up and standing out. Here are four things you can do to position your firm for the new reality.

1. Communicate digitally and in real time. Real-time access to live information is simply a given for consumers today. Your customers are hyperconnected and get all of their news online, so you need to be operating on the same frequency. Clients should know they can rely on you for turning over information at the pace of their fiberoptic lifestyle. Imagine a client responding to breaking financial news and wanting your guidance before acting on it: Do you think she’ll call and see if she can schedule a time to drop by your office to chat about it? Right. Keep waiting by the phone.

2. Embrace technology and the fee compression that comes with it. RIAs are concerned that technology-enabled solutions will degrade their value and squeeze their margins. Sure enough, digitally-empowered businesses are closing more business with a fraction of the overhead spent by conventional firms. But there’s a soft spot between human interaction and digital advisory. If you can enhance the client-advisor experience by incorporating tech, you should be able to reduce your fees to be competitive with the robo crowd. Digital solutions can help lower your operating costs drastically enough to justify big savings for clients while your firm still maintains a comfortable profit margin.

Consider Tanglewood Wealth Management, a Texas-based firm spotlighted this summer in the Houston Business Journal. Tanglewood, another client of our firm, has leveraged acquired and proprietary technologies to lower overhead and increase labor efficiencies. Clients with $10M to $12M are currently paying about a third of the fees they were charged in the 1990s, while those with about $2M in the firm are now paying half. With just 12 people on staff, Tanglewood is currently managing approximately $800 million in assets.

3. Add alpha outside your portfolio.  What does your advice process look like? Are you steering clients to the best saving strategies and recommendations? The business once hinged on the privileged insights of human advisors, but their information advantage evaporated as connectivity wired everyone into the same sources. RIAs are finding it increasingly hard to find the bandwidth and the capital to staff the very functions — deep research, long-term market projections, client interface — that can save their hides. The successful RIA thinks past the algorithms, knows his or her customers, and explores avenues for producing the best financial outcome for their clients – measured in the totality of their financial life, not simply in the increasingly commoditized investment portion of it.

4. Own your opinions.  Gun-shy in the face of low-balling competitors, many advisors are under-utilizing the ultimate human vs. machine edge: their savvy and judgment. But clients need your guidance. Share your insights, and demonstrate openly that you have an understanding of how to address each customer’s needs. Your judgment is your greatest differentiator, so let your voice be heard. Remember that it takes a genuine humanoid to provide another with peace of mind, and ultimately that is what draws customers to your expert counsel. It’s something no algorithm can offer.

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