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One of the misnomers in the financial services industry about automated investing platforms is that they constitute financial planning advice. This has led to a misunderstanding of the value proposition of automation and, frankly, the slow engagement of such platforms by RIAs.
For all of its sophistication, a platform such as Schwab's Institutional Intelligent Portfolios (IIP) does not provide advice but instead provides a very sophisticated way to implement the highly customized advice of a human adviser.
Highly efficient, low cost, and transparent investment management and client communication through the use of automated platforms, if properly deployed and utilized, promote client engagement with the underlying firm and, more importantly, between the client and their financial future. It is this second benefit, financial self-actualization, that throws the door open to use automated platforms for all clients, not just those who are young, have fewer assets, or less complicated financial lives. This is the point that most investment and wealth professionals are missing: their clients didn’t hire them because they could string together a dozen mutual funds and call it investment management. They hired them to provide them with a beneficial financial outcome.
SWS Partners is unique in that we have used automated investment management across our client base since our inception in 2014. While none of our founders came from automated investment backgrounds, we all realized after starting SWS Partners that automation was the way of the future for our industry. Therefore we have avoided the need to remake our firm or reimagine our business model like many existing RIAs are now being forced to do, or at least they should be.
As Sir Richard Branson once said, “be open to change, or you will be left behind.” Whether you like it, believe in it, or are afraid of it, technologically driven change is upon us. In a short three years, it 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.
While technology firms are driving the advances we see, the driver behind the rapid pace of acceptance is the investing public. There is an insatiable hunger by investors of all ages for ease of use, mobility, transparency, and, most importantly, their engagement. Believe it or not, there is much that an investment manager can learn from the likes of Amazon or Netflix as it relates to personalizing communication and making sure it is in the appropriate context. These firms have thrust investment managers into a new reality.
This is why we at SWS Partners believe that technology is a benefit to our clients and ourselves and that advice comes from interaction with humans, not through automation platforms.