Bill Harris was running late. The CEO of Personal Capital had agreed to be part of the advisor technology panel at the Money Management Institute’s 2014 Fall Solutions Conference. It was already past 12:30pm, when the panel was scheduled to begin and Bill had not yet arrived. He had gotten stuck in traffic on his way through Manhattan after his appearance on CNBC that morning promoting his company.
The moderator, Joel Hempel, COO of Lockwood Advisors, was beginning to tell the audience that they were going to wait a few extra minutes for Harris when he suddenly rushed through the double doors at the back of the room and made his way through the crowded tables.
Just as Harris passed the last row of tables and was only a few steps away from the podium, he suddenly tripped on the rug.
And then he fell.
This was not a minor stumble where you catch yourself and just miss a step. This was a complete loss of all balance and a fall all the way to the ground.
If that was not surprising enough, what happened next was. Just as the 58 year old financial software guru hit the carpet, he did a somersault and popped right back up again without missing a beat.
Quite an entrance for the Silicon Valley icon, who founded Intuit, the company behind Quicken, QuickBooks and TurboTax and was also the founding CEO of Paypal.
This session was supposed to a broad discussion around how firms are applying technology to improve the client experience. However, having an entrepreneur with a success record like Bill Harris present, he quickly dominated the discussion that focused on robo-advisors and how Personal Capital is going to beat them all.
It is a myth that only Millenials want to use technology, observed Kameron Rezai, Head of Retail Investment Technology at BlackRock. The median age of robo-advisor clients is 35, he noted, which means there is a healthy mix of Millennials and Gen Y’ers and some Baby Boomers thrown in there as well.
All consumers will want more technology-enable methods for communicating with their advisors, Rezai stressed. There must be a technology component when advisors interact with clients. To that end, BlackRock provides a number of tools and calculators to help clients understand their retirement options, he explained.
The best way for firms to reach potential Millennial clients is to improve their digital footprint by creating content that resonates, urged Victor Gaxiola, Customer Advocacy Manager at Hearsay Social. A mix of financial and non-financial information will attract the most readers and help to foster a connection with them, he stated. (See Why Demographic Differences Define How Advisors Should Talk to Clients)
Gaxiola, whose firm provides regulatory-compliant social media tools for wealth management professionals, added that online content needs to be ‘snackable’, meaning short and concise and easily combined with other materials.
Rezai added that simplicity in design also keeps users engaged online. When BlackRock designs new software, before it is deployed, they review it with the goal of removing as many features as possible while still delivering the promised functionality, he noted.
Technology products can become wildly complicated very quickly, Harris agreed, having experience developing some of the most successful software in the history of personal computing. Regarding simplicity in messaging to clients, technology limits can sometimes be beneficial, he said, “the great thing about Twitter is that even if the content is boring, at least it’s short!”
You have to communicate something that people want to know, Harris continued. Personal Capital offers their clients the option of receiving an email update on their portfolios. Over 10,000 users have requested to be sent this email on a daily basis, which he attributed to clients’ need to monitor their accounts for any fraudulent activity.
The world is changing from physical distribution to digital distribution, Harris proposed. While every industry is influenced by connectivity, there are two that have and will be most profoundly influenced; media and finance, he noted.
The finance industry has a lot in common with media in that they have no tangible products, Harris explained, with their services, content and client interaction all able to be delivered electronically.
We have already witnessed the revolution of the media industry by the Internet and finance is next in line, Harris believes. Old media suffered through the colossal deconstruction of firms and business models and the same will happen to financial services within the next ten years, he predicted. (See The Future of Advice Delivery: What Will Solutions Look Like?)
Why is Personal Capital different from other robo-advisors?
Harris doesn’t believe that Personal Capital should be classified as a robo-advisor but as a digital wealth management firm. He is somewhat dismissive of the firms in the robo-advisor category such as Betterment, Learnvest, and Wealthfront as simply online providers of inexpensive baskets of ETF’s. They are not really advisors, but only sellers of investment products, he stated.
Robo-advisors believe in only algorithms, Harris insisted. His firm sets itself apart by providing advice through both algorithms and human advisors. They have around 100 advisors, he reported, which allows them to offer the combination of high tech and high touch.
How can firms develop and leverage scalable advice?
According to Hempel, Forester Research reported that 74% of business executives say their firm has a digital strategy, but only 15% think they have the skills and capabilities to execute them. This means that they need partners to help them reach their technology goals.
Partnership agreements are already hitting the wires. Earlier this month, Fidelity Institutional Wealth Services announced they are working with Betterment to offer their institutional service to advisors and create their own robo-portfolios for clients.
What are some of the advantages for advisors who can successfully leverage new technology?
Advanced tools can allow advisors to see who their best clients are and try to clone them, Gaxiola offered. Geography is no longer a limitation to advisors who leverage technology. He told the story of a successful advisor in Minnesota who had built a practice that focused solely on bass fishermen around the country. The advisor used social media to connect with fisherman and often would invite them to fish with him and then close the deal to bring them on as a client. (See 7 Best Practices of Successful NextGen Advisors)
What types of advisors does Personal Capital hire?
The wealth management industry is overwhelmingly older, white and male, Harris complained. For this reason, Personal Capital set out to hire a diverse workforce. They hire people with at least two years of experience with a client facing role, preferably at an RIA. They tend to avoid anyone with more than 5 years of experience since they most likely have already become set in their ways and fixed to older paradigms, he said.
The average age of Personal Capital advisors is their early 30’s, Harris reported.
Their advisors don’t have their own book of business, since all clients belong to the firm, Harris pointed out. They don’t even want new advisors to try to bring their books with them, he said.
Can robo-advisors survive the next market downturn?
In an earlier panel that discussed the future of robo-advisors, a theory was presented that due to their impersonal nature, many robo-advisors would not survive the next market downturn. Harris explained that Personal Capital would not suffer this fate since they have human advisors on staff who will reach out to clients and reassure them and be there to answer their questions. (See 3 Tips for Helping Clients Deal With a Crisis)
A new paradigm is taking over in wealth management, Rezai proposed. “Technology when you want it, people when you don’t.” All financial advice will move in this direction, similar to how Personal Capital works, he said.
Does Personal Capital offer other product types besides ETF’s?
This was an excellent question, that was asked by Sandy Bolden from Pershing, considering Harris had lambasted his robo-competitors about only selling ETF’s.
Harris replied that his firm also deploys individual domestic equities to create a flexible index. Their goal is to obtain the same Beta as the index, but be even less expensive that ETF’s and offer personalization and customization. Using equities also allows Personal Capital to use tax-loss harvesting and asset location to reduce the tax burden of their clients. These are services not offered by any of the robo-advisors, Harris stated.
How are regulatory issues limiting the use of new technology by advisors?
The lack of regulatory clarity is the biggest impediment to social media usage by advisors, Gaxiola explained. Hearsay Social can help advisors locate social signals that identify money-in-motion events, he stated.
Some firms push the regulatory boundaries and their product and sales people are in a constant battle with their compliance departments, Rezai noted. But what they need to understand is that regulations are excellent barriers to entry for our industry. The more Compliance needs to be involved, the harder will be for competitors to enter the market, he described.
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