Robo-advisors are advanced computer algorithms that can calculate financial, investing and insurance advice for clients using data the client inputs, and are set to become a major force in the world of insurance sales and financial advising. These systems are slowly gaining traction throughout the industry and hold a particular appeal for young consumers who favor self-directed financial strategies.
Financial professionals may be wary of these new tools, because robo-advisors offer many of the same services provided by a traditional financial professional. As robo-advisors and similar services become more prevalent, financial professionals need to adjust their approach. These tools do not necessarily threaten traditional financial professional roles, but robo-advisors are likely to change consumer expectations and alter the way financial professionals engage with their clients.
The current relationship
Robo-advisors are still in their infancy, but these systems have already gained a foothold with a certain type of consumer. A LIMRA survey examined the opinions of both consumers and financial professionals and found that younger consumers are more attracted to robo-advisors. That could have significant implications as these clients grow older and robo-advisor software becomes more complex.
LIMRA noted today’s robo-advisors are specifically targeted at investment management, but that’s just the tip of the iceberg. In the future, these systems will offer more holistic financial advice and could sell a range of products and services, including life insurance.
Currently, those who are prone to self-directed investment are most likely to use robo-advising systems. These people may continue to eschew financial professionals, but many clients are likely to continue working with a human representative who is able to better understand their long-term financial goals. Robo-advisors may actually be most useful in this context – as assistants to financial professionals.
Man and machine
It’s unlikely that consumers will face a choice between robo-advisors and traditional financial professionals. Instead, they will probably work with a financial professional who leverages the capabilities provided by a robo-advising platform. This will dramatically increase a financial professional’s ability to cater to client needs, and financial professionals will have the judgment necessary to tweak the robo-advisor’s advice for a specific client’s needs.
“[A]ll professionals will, at least conceivably, be able to deliver state-of-the-art technical solutions to their clients with greater transparency and responsiveness,” said Hannah Shaw Grove, the author of “Advisor2000: Strategies for Success in the New Millennium,” in an interview with Forbes.
