Rise of robo-advisors in mortgage business could have an impact

An advisor’s professionalism hinges on his or her ability to provide consistent service and this is one area where robo-advisors may have the edge on their human counterparts, according to Shawn Brayman, president of PlanPlus Inc. in Lindsay, Ont.

Robo-advisory services ask potential clients a series of identical questions to determine their investment profiles, but human advisors often fail to have a process around learning more about their clients’ investment profiles and using that information to make the best investment choices, said Brayman, who spoke at the Canadian Institute of Financial Planners’ (CIFPs) annual conference in Vancouver on Saturday.

“[In my opinion,] if a human being can’t talk to five of us and at least get three people to give the same answer, we’re witch doctors and not a profession,” he said.

One area where advisors can fail is in determining clients’ risk tolerance, according to Brayman.

Brayman used a sample robo-advisory registration process to demonstrate one key difference between robo-advisors and traditional advisors. Clients using this particular robo-advisor would be asked to fill in the answers to questions regarding their financial goals and ability to handle risk. If the responses are unrealistic, such as expecting high returns with no risk, the program will alert the client to this and inform the client that he or she should speak to a human professional.

On the other hand, research shows that on average, human advisors tend to rate their clients one risk category higher than they should be, according to Brayman.

The fee structures of traditional advisors are also under pressure from the low, flat-fee model adopted by robo-advisors. Advisors should expect downward pressure on pricing and the emergence of new pricing models in response to the robo-advisor shift in the industry, said Gordon Gibson, an industry consultant who is now retired from his role as senior vice president and managing director at National Bank Financial Ltd. in Montreal.

He told the CIFPs audience that he planned on talking to his own advisor about implementing an hourly fee for investment services.

“Why not? I pay a lawyer and an accountant an hourly fee,” he said. “Why should I pay an investment advisor a fee on my assets?”

Brayman emphasized that advisors must rethink their billing models sooner rather than later.

“I don’t think that anybody here is going to lose clients to robos. You are bringing the value and will be the survivors,” he said, “but I do think the existence of robos will fundamentally change the expectations around billing on portfolios. It’s inevitable.”

Editor’s Note: Investment Executive conducted a draw at the CIFPs 2015 annual conference in Vancouver for a $100 Petro-Canada gift card. The winner of the draw is Scott Tarasuk from Surrey, B.C.