Overcome Robo-advisors with the ChFC® and RICP®

While 2008 will forever be remembered as the start of a terrifying financial downturn, it also marked the introduction of robo-advisors to the financial market. Growing in popularity, especially among the tech-savvy Millennial Generation, robo-advisors offer online wealth management services that use automation and algorithms to help manage client portfolios.

While some may argue their adequacy for beginner investors, robo-advisors lack fundamentally important skills in which human advisors excel; active management of financial portfolios and personal interaction with clients to name a few.  As with any competitive situation, the better you know your opponent the more prepared you’ll be to overcome him. Detailed below are three distinct weaknesses of robo-advisors and how the Chartered Financial Consultant® (ChFC®) and Retired Income Certified Professional® (RICP®) designations can prepare you to best compete with this new automated investment trend.  

Weakness One: One Size Fits All

Offering lower fees and interfaces with smart phones and computers, robo-advisors are capturing the attention of the younger generation. Even though this automated wealth management service may hold value for novice investors with limited funds, it can present challenging limitations to the same investors as their assets grow and diversify down the line. With a defined set of rules and algorithms, robo-advisors primarily utilize the same approach for all investment strategies without considering unique requirements.

A human financial advisor on the other hand can tailor advice and customize services to meet a client’s evolving life and investment requirements. A robot cannot properly account for factors outside of finances such as how to plan for insurance or choosing between tax-free or tax-deferred accounts. Only a live financial advisor can help forecast or consider the implications of life events for the purpose of structuring an ideal financial plan.  

Millennials as a demographic are infatuated with technology and innovation and even though robo-advisors check those boxes, they can’t compete with expert guidance delivered by a live advisor. They can’t hone specialized skills with an advanced financial designation, skills that are necessary to build sound investment strategies. One of the industry’s most sought after designations, the Retirement Income Certified Professional® (RICP®), teaches financial professionals intricate ways to create a sustainable retirement income stream for their clients. The Chartered Financial Consultant® (ChFC®), one of the most recognized financial training programs in the country, delivers a comprehensive curriculum detailing financial planning disciplines like insurance income taxation, retirement planning, investments and estate planning. Robo-advisors simply can’t match the level of sophisticated service enabled by an advisor earning one of these elite designations.

Weakness Two: Automation is Just Not Personal

As an automated tool, the robo-advisor recommends investments based on a set of factors entered into its formula. While a simplified approach to financial planning entices some, the advice is impersonal at best. With required fiduciary responsibility to customers, reputable financial advisors take the time to verify investor information and explain product options as part of recommending an investment strategy. Human advisors are also capable of considering both short- and long-term goals when choosing the right investment vehicles for clients.  

Advisors with a beating heart offer more personal insight and "guidance about the asset allocation best for a client based upon unquantifiable factors, which computer programs can never do.”  Additionally, Investor Junkie notes that "Financial advisors can give recommendations about complex and often emotional long-term life decisions (e.g., help plan for a child's education through a recommended action plan or deciding to provide full time care for an aging relative)", something an automated system simply can’t comprehend.

Millennial investors or any new investors just getting into the market often require extra personal attention, from initial sit-down meetings to repeated follow up phone calls to ensure their assets are secure, growing or being properly monitored. Others may like to discuss strategy for both short and long-term goals, something a computer can never do. Personal contact is imperative for building long-term and trusted relationships, the kind that simply cannot be established with robo-advisors.

The ChFC® program teaches communication techniques to effectively develop authentic personal connections with Millennials and clients of all ages and generations. Unlike the sterility of robo-advisors, ChFC® courses empower advisors by equipping them with diverse skills necessary to expertly guide clients to financial success.

Weakness Three: No Protection Against Risk

Many Millennials prefer robo-advisors  because "the lingering impact of the 2008 recession looms in the recesses of their minds." These concerns are understandable for young clients who watched their parents struggle through extreme financial turbulence. Ironically however, many robo-advisors are not doing a good job calculating a client's risk tolerance.

As FinaMetric's Paul Resnik points out, "without a scientifically accurate risk-tolerance process, robo-advisors are at risk of recommending investments that are not suitable for their clients”.  He further emphasizes that  "there's a great likelihood that the portfolio won't meet the client's capacity to cope when the markets go boom and crash." Bottom line, the robo-advisors that Millennials have embraced because of their fear of a recession may be doing a terrible job of preparing them to survive another one. By contrast, financial advisors with a ChFC® or RICP® designation have the confidence to talk frankly about risk tolerance and have developed comprehensive knowledge to guide clients towards appropriate investment strategies based on their findings.  

Financial advisors exist in an perpetually competitive landscape, one only further complicated by the addition of robo-advisor technology.  Earning an advanced financial designation is proactive and proven way for advisors to overcome competitive challenges and position themselves for a more successful and lucrative career. 

Attracting Millennial clients is just one piece in the puzzle of building a successful practice. After you've prospected many different groups, what comes next? To learn more about how to build a thriving practice, be sure to check out 6 Ways an Advanced Financial Designation Helps Grow Your Practice!