Notes

Mercury Capital Advisors: Digital Wealth Management - Robo Advise is not just for Millennials any more

Lured by the presence of lower commissions and the absence of sometimes awkward sales pressure, investors of all stripes appear eager to embark on relationships with robo-advisors.

But fear not. That doesn’t mean investors will “unfriend” their professional financial advisors. Most still want the option of talking to a trusted financial confidante. For investment firms, the challenge is how best to combine digital, low-cost investment advisory services with the traditional approach.

It’s becoming clear that no single formula exists for how—and at what cost—traditional wealth managers should mix a digital experience into their designed client journey. Several brokerages have developed proprietary robo-advisory platforms in-house. Others have been acquiring existing robo-technology to build out their service, offering it as a white-label solution. Indeed, the sector has not lacked for deal-making activity as industry players hunt for the kind of technology they need to bag premium-paying procurers.

In February, for instance, Mercury Capital launched a pilot program in collaboration with Emotomy, leveraging the latter’s digital advice platform. That engagement is the latest of many industry marriages, which have also included RBC Wealth Management’s alliance with FutureAdvisor and Pershing’s partnership with Marstone, both of which are aimed at producing technology platforms for advisors. The commotion is not likely to stop there, as more and more incumbents sense the potential for automated advice-givers. The market can expect to see other asset management firms, as well as wealth advisors, find ways to get in on the robo-activity. Over the long term, such partnerships may expand to combine personal relationships and digital experiences customized for each client segment. While digital platforms will need time to scale, :

Robo-advisors have broad appeal. Such partnerships indicate that the emerging hybrid model is aimed squarely at addressing a demographic beyond millennials. Even high net-worth clients, whose complex needs typically require human intervention, will want the option of

interacting with a digital wealth experience that guides them on their route from prospect to client. The dreaded baby boomer cohort isn’t retreating at the sight of the millennials. In fact, as members of the older generation succumb to retirement, their needs will grow more complex.

Millennials will serve as early adopters.The next generation of investors has been quick to embrace new technologies and experiences, and this should apply to robo-advisors. Furthermore, millennials have a general mistrust of large financial institutions, particularly in the wake of the financial crisis of 2008. Unlike their parents, who forged close relationships with advisors—even using their phones to have conversations with them, as primitive as that sounds—millennials are equally comfortable with making digital connections. They’ve been conditioned to accept that technology can match the performance of its human predecessors, while offering reduced fees and providing greater convenience.

Robo-advisors will gain popularity across all client segments. As machine-learning algorithms continue to develop and produce an investment record, consumers are likely to use these services more and more to complement their existing investment methods. As millennials mature—and their assets increase—they could very well tilt the balance toward more automation, which would be augmented at higher asset levels with a personal relationship.

Typical to any disruptive innovation in financial services, the first to market addresses the underserved. Robo-advisors like Betterment, Wealthfront, and Personal Capital did just that. But automated digital advice has clearly attracted the attention of incumbents. Established players are deploying a quick follow strategy through acquisitions and creating “me too” experiences that emulate disruptors. Scale and distribution matter, and the quick followers don’t need to get it perfect. What’s next? Differentiation. The leaders will need to design a unique digital experience integrated into the fabric of how they serve their clients that combines personal relationships with a digital experience.