Special Feature

The Tech Revolution

In this special feature: the future of the advisory business; compliance and technology; leveraging social media; tech's dark side; and much more.

As robo-advisors become more popular, a new model - in which human advisors interact with clients while the digital platform manages asset allocation - is emerging in the U.S. and Canada

By Fiona Collie | Mid-February 2017

Digital wealth-management companies, also known as robo-advisors, may well have earned the label "disruptors." But that doesn't mean these financial technology (fintech) companies signal the end of human financial advisors.

"Digital is where the future is going," says Jamie Holland, senior vice president of global wealth in Toronto with Montreal-based CGI Group Inc. "But not without humans."

In this new future, robo-advisors and human financial advisors will have to work together, creating a hybrid form of advice. And typically, there will be change on both sides of the equation: robo-advisors will bring more human contact into their practices, while human advisors will use technology to better serve their clients.

And it's not just new systems driving this evolution. In some cases, regulators are requiring robo-firms to back up their recommendations to clients using human advisors who review choices with clients.

Moreover, clients don't necessarily want to give up the human touch when receiving financial advice. According to recent research by New York-based Accenture LLP, about seven in 10 global consumers would use robo-advisor services for banking, insurance and investments. However, a majority, 61%, said they still want some human interaction when dealing with financial services for complex products, such as mortgages.

This focus on human interaction is reflected in the increasing number of robo-advisors that are adding financial planning and a more customized menu of services for clients. Most recently in the U.S., New York-based Betterment LLC began a service with a personal touch: clients with $100,000 or more to invest connect on the phone with a certified financial planner.

"We're going to get to help more people and help them on a broader array of questions," says Dan Egan, director of behavioural finance and investing at Betterment.

Canada's robo-advice industry, although younger than its U.S. counterpart, has always resembled a hybrid model because of Canada's regulatory regime. Firms offering digital advice platforms in Canada are required to have a licensed representative review clients' "know your client" information and, if necessary, contact the client directly to discuss that information.

Some robo-advisors go one step further and provide more contact and financial planning services for clients. For example, Vancouver-based WealthBar Financial Services Inc. offers its clients access to a dedicated advisor and a financial plan. And Vancouver-based ModernAdvisor Canada Inc. and Toronto-based Wealthsimple Financial Inc. recently launched higher-level services for mass-affluent clients.

Other digital advice platforms have made financial planning and customization a part of their offering.

This trend toward more financial planning and advisor contact is likely to continue among robo-advisors - and within the financial advisory business at large, according to Tea Nicola, CEO of WealthBar: "I think what you're going to see is that this hybrid model is going to revolutionize the traditional industry."

That revolution will come as advisors turn more often to a robo-advisor type of technology to offer portfolio-management and back-office services, Nicola says, while the advisors focus on the client relationship. Even without a robo, advisors will likely find themselves using new technology, particularly for multi-generational households, whose family members may have varying financial needs and expectations about communication.

"You need to have a proper platform underpinning [the client household] that allows you to do multiple account types and multiple investment options for clients, and also have the digital capabilities to be able to [contact the client]," Holland says.

For example, although an advisor may work with a more traditional client by holding in-person meetings, that client's adult child may wish to access his or her portfolio and advice differently, while remaining a part of the household account.

The new digital platforms also will have to expand their offerings to compete with the big banks, which already offer all levels of service to all demographic groups. "In the future, the evolution of the advisor-hybrid model will probably be to serve customers using a layer of automated services and varying degrees of human intervention and advice on top of that," says Hwan Kim, a Toronto-based manager with Monitor Deloitte of New York.

One firm looking to take a more comprehensive approach is Toronto-based Planswell. This start-up offers clients a financial plan free of charge and then, if the client wishes to proceed, the firm can implement the plan, including investments, insurance and mortgages. For Planswell's president and CEO, Eric Arnold, the future for advisors lies in working with fintech companies rather than trying to stay within the traditional advice model.

"We will always have advisors working with us who can talk to clients," Arnold says. "I don't agree with tech companies that believe they can completely eliminate humans. In this business, the human relationship aspect is important."

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