fbpx

WealthTech Insights #57 with John Prendergast. The Augmented Advisor: Scaling Efficiency and Margins

Can “cyborg” advisors shift the tide of FinTech?

Interview with John Prendergast,
Cofounder, Director, and CEO of Blueleaf

According to the KPMG report “Forging the future,” the top source of disruption in the financial industry is emerging financial technologies (FinTech). Historically, there has been a human layer between clients and their finances whether that was to access information or to execute transactions rather than customers having access directly via technology. Not that long ago, advisors were the primary source of information and news cycles weren’t 24/7.

Today, TV talking heads, Facebook posts, Twitter and advertorials bombard clients. “Each of these sources have their own incentives,” John Prendergast, CEO of Blueleaf, pointed out. “Media works to drive ratings. That means telling the worst stories in the scariest ways, whether or not they are relevant or even true. It’s not where you want your clients financial ideas coming from but they watch and it creates questions and anxiety. Advisors can no longer wait till a quarterly review to respond. We need to counter that propaganda as it happens. To do this effectively, advisors need to adapt and embrace new technologies.” Prendergast believes advisors need to augment their behavior, knowledge and customer contact to stay relevant.

Is robo-advice the best advice for scaling business?

Handling trading and rebalancing for clients was historically a large part of an advisors value. Robo-advisors now offer a low cost substitute which is one of the reasons they continue to grow so quickly.  They are moving toward automated investing, and machine-learning algorithms for trading and asset allocation, further eroding the advisors’ traditional roles. Prendergast believes there is significant value in a hybrid approach.

“The real value of an advisor is helping give consistent perspective and judgment to their clients. And the clients actually need that much more now than they ever have because of the growing dynamics and complexity of their financial lives and the media that they’re assaulted with day and night.”

The hybrid model takes the human touch and combines it with automation technology. And according to research carried out by people like John, the fastest-growing and -scaling advisors are communicating the most frequently with their clients.

“You need to communicate more and more effectively with clients in order to grow your business and in order for the clients to feel like they’re getting value. But most advisors still view communication with clients through the traditional lens of a performance report. And that’s not everything a client cares about. A client cares about their goals and their whole balance sheet.”

To enable communication in a broader, more complete, and customizable way, automation is not only a big help, it is the only way to meet client expectations for always on, personalized information and advice.

The Growth Challenge

Some financial trends ebb and flow, like regulation and compliance concerns, which vary according to the political and social climate. The long-term material trend that isn’t changing is margin compression and therefore the need for greater efficiency.

Blueleaf monitors key financial and performance metrics for the advisor’s business, including margins. John doesn’t believe robo-advice is the main cause of fee compression but doesn’t mean it can be ignored. Future businesses will need to aim for efficiency and automation to make their business manageable and profitable. To accomplish this, businesses will have to service more clients more effectively.

“The solo advisor that works from home or a small office, their cost structure is much more favorable than a mid-sized firm with 10 or 15 advisors that’s got one or two offices and has a lot of traditional expenses. This is because they don’t have the scale to spread expenses around the way that a firm with 100 or 200 or 1,000 advisors does. Growing and mid-size firms need to become super, super efficient to thrive.”

The “Iron Man” advisor model

Robo-Advisors can efficiently deliver simple, continuously rebalanced portfolios and reports. But client relationships and communications are different. That is a human advisor’s advantage. However with the growing need to serve more clients per advisor, advisors will need to become like Tony Stark. John explained that to scale and grow, “advisors need to become like Iron Man, they’re still intimate in directing the activity — but they need the suit and Jarvis (Iron Man’s supercomputer) to give them the leverage to do far more.” The point of this analogy is that automation independent of the human advisor won’t create enough client value. The end goal of automation isn’t just efficiency, it is to take the advisor’s intent and extend it. Advisors will need to adopt advanced analytics, new communication channels and even artificial intelligence.

Blueleaf calls this superhero model the augmented advisor. The augmented advisor leverages human intelligence and emotional intelligence coupled with superior technology that deliver better client experiences but at vastly greater scale.

“We want to enable automation that’s super easy and super scalable for an advisor. So whether you’re an advisor that wants to golf more or grow your business, your intentions are augmented allowing you to do more with less.”

How augmented advisors will disrupt the market

The future of advisory revolves around better service scalability driven by technology. Blueleaf believes the human advisor is essential but won’t be able to serve their clients and build their book of business with traditional approaches. One of the ways in which technology can support advisor in their role is in helping to anticipate client needs. Combining client behavioral data with market information and advanced artificial intelligence, systems will spot client needs and recommend actions to advisors who can simply push a button to act. Their judgement is still in the loop but the machines will do all the work.

“If a client needs a call, we might be able to see that based on their online behavior and based on other patterns and historical patterns with that client. And through machine learning or artificial intelligence, we can raise that up and offer a solution to the advisor. ‘Look, Client X needs Y and here it is, if you want to do it, push this button and you’re done.’”

Part of this intelligence available to the augmented advisor can and should be used to identify prospective clients. This can be achieved by better understanding the client’s situation—the best way to uncover a prospective client’s needs.

“We think that there is a lot of the opportunity in bridging the gap between servicing 50 clients today and the 500 that you’re going to need to service tomorrow. And that’s going to need to be intelligent automation, so that’s where we’re spending our time.”

Blueleaf has data scientists on staff that are helping to discover the sweet spot, or balance, for creating the augmented advisor, and John said that the application of machine learning is helping to feed the system itself.

The bottom line

The investment advisory market is being shifted by technology and changing client expectations. Advisors that will thrive in changing conditions are those that embrace the change and incorporate the benefits technology brings into their practices rather than viewing it as a competition.

About

John Prendergast has a background in both direct financial services and software development. He received an undergraduate degree in economics and computer science from Boston College and an MBA in finance, technology, and marketing from Northwestern. His early career was spent at a series of startups where he worked primarily as a product manager. After a brief period of time working as an advisor with Merrill Lynch, he worked as an investment banker for over a decade, gaining experience in mergers, acquisitions, and public financing. In 1999 he cofounded Blueleaf, a leading reporting and communications FinTech platform.

John Prendergast, cofounder, director, and CEO of Blueleaf

 

DOWNLOAD PDF


Interviewed by Vasyl Soloshchuk, CEO and co-owner at INSART, FinTech & Java engineering company. Vasyl is also the author of WealthTech Club, which conducts research into Fortune and Startup Robo-advisor and Wealth Management companies in terms of the technology ecosystem.

Joe Elsasser, CFP®

President and Founder of Covisum®

WealthTech Insights #74 with Joe Elsasser. The Future of Financial Advisors Is Technology Augmented

In the next five to ten years, the role of the financial advisor—the human advisor—is going to be more and more technology augmented. With Joe Elsasser, CFP®, President and Founder…

Sean Brown

President and Chief Executive Officer at YCharts

WealthTech Insights #73 with Sean Brown. How can WealthTech better enable Advisers?

With Sean Brown, President and Chief Executive Officer at YCharts, we discuss how the role of a financial advisor has changed and what WealthTech companies should offer them. Sean believes…

Catherine Clay

SVP, Global Head of Information Solutions at Cboe…

WealthTech Insights #72 with Catherine Clay. Why Would Fintechs Collaborate with Big Corporations?

With Catherine Clay, SVP, Global Head of Information Solutions at Cboe Global Markets, we discuss pros and cons of merging fintechs. Should a financial institution acquire a startup that's running…

Robert Seidman

Offering Manager at IBM Watson Financial Services

WealthTech Insights #71 with Rob Seidman. Commoditized Infrastructure Becomes Requisite to Focus on Customers’ Needs

What if wealth management companies were unburdened from infrastructure concerns and instead could conquer the cutting edge? With Rob Seidman, Offering Manager at Watson Financial Services, we discuss artificial intelligence,…

Robert Seidman

Offering Manager at IBM Watson Financial Services

WealthTech Insights #70 with Rob Seidman. Should a Wealth Management Firm Do Cybersecurity?

With Robert Seidman, Offering Manager at IBM Watson Financial Services, we discuss data security issue in WealthTech. Should they rely on counterparties to secure systems and data or tackle cybersecurity…

Robert Kirk

Founder & CEO of InterGen Data, Inc.

WealthTech Insights #69 with Robert Kirk. Use Cases for AI Data Analysis: Marketing and Early Warning of Life Events

With Robert Kirk, Founder & CEO of InterGen Data, we discuss whether AI can help advisors more accurately predict a life event and generate better marketing to drive more onboarding…

Brian McLaughlin

CEO of Redtail

WealthTech Insights #68 with Brian McLaughlin. Artificial Intelligence in Fintech – No Longer Just Hype

The AI revolution is coming in the form of machine-learning algorithms such as chatbots and smart data extrapolation, which can be used to analyze information and provide insights. Brian McLaughlin,…

Brian McLaughlin

CEO of Redtail

WealthTech Insights #67 with Brian McLaughlin. What can Replace All-in-one Solutions?

Some tech firms offer advisors all-in-one solutions. The premise is that if everything is in one place, daily routines and workflows will go more smoothly with significantly lower software expenses.…