More than a year ago, I published a piece for Investments and Wealth Monitor that was a follow up to an interview I participated in as part of the Schwab Impact Conference in 2016. It felt appropriate to resurface the article now because many of the ideas are increasingly mainstream today even if they felt a little radical only a few years ago. Alas, it’s important for affluent investors to discern between talking points and the implementation of tools that will assist with financial self-actualization.
The following is an excerpt of the IWM article:
Efficient, low-cost, transparent automated investment management and client communication platforms, properly deployed and utilized, promote client engagement with the underlying firm and, more importantly, between clients and their financial future. This second benefit, financial self-actualization, begs us to use automated platforms for all clients, not just those who are young, have fewer assets, or have less-complicated financial lives. Remember, clients don’t hire advisors because they can string together a dozen mutual funds and call it investment management. They hire advisors to provide them with a beneficial financial outcome.
The impact of automation, however, has been a shock for the wealth management industry, which historically has wrapped itself in a warm blanket of asymmetry with its clients with very little technological or product advancement.
This article follows up on an interview I participated in for the March/April 2017 issue of Investments and Wealth Monitor,[i] which focused on firms that had “embraced digital-advice platforms.” My firm, SWS Partners, has certainly “embraced digital,” but I can’t say that we consider the Schwab platform we use, or any competing digital platform, as “advice.” For all of its sophistication, a platform such as Schwab's Institutional Intelligent Portfolios (IIP) does not provide advice, but it does provide a very sophisticated way to implement the customized advice of a human advisor.
AUTOMATION IS THE FUTURE
SWS Partners has used automated investment management across our client base since our inception in 2014. None of our founders came from an automated investment background, but we all realized that automation is the future for our industry. Therefore, we have avoided the need to remake our firm or reimagine our business model, like many existing registered investment advisors. As Sir Richard Branson once said, “Be open to change or you will be left behind.”[ii]
Whether you like it, believe in it, or are afraid of it, technology-driven change is upon us. In just the past three years, technology has driven down costs, exposed conflicts of interest, and dramatically accelerated the pace of change in an industry that is accustomed to methodical change if not outright stagnation. Many of the technological advances we are seeing are being driven by technology firms, but the main driver is the investing public. There is a hunger among investors of all ages for ease of use, mobility, transparency, and, most importantly, engagement. An investment manager can learn a lot from the likes of Amazon or Netflix about personalizing communication and making sure it is in the appropriate context. These firms and the way they do business have thrust investment managers into a new reality that includes, for example, the following:
No more segments. With the implementation of automated platforms, the historical model of using minimums to segment clients is no longer viable or advisable. As such, SWS Partners doesn’t segment clients by the size of their accounts or their ages or their sophistication. Instead, we provide an á la carte menu of services that allows clients control over how they plan for and manage their wealth. Every service and its cost are clearly defined so that clients can understand how much they are paying for each service they use.
Financial planning for all. Unlike many of our competitors, SWS Partners doesn’t require that a client have a minimum balance before we will provide financial planning. We tell prospective clients that they can be financial planning clients without being investment management clients, but they cannot be investment management clients without being financial planning clients. (It has always fascinated me that financial advisory firms treated planning as the least valuable thing they offer.)
[i]. “An Interview with Michael Heburn, Philip Kessler, and Cam Goodwin: Charles Schwab Panel–Automated Advice,” Investments & Wealth Monitor 32, no. 2 (March/April 2017): 36–40. [ii]. “There is nothing permanent except change,” Heraclitus (535-475 BC).