Determining the best digital strategy for your firm

Gordon Moore, the co-founder of Intel, theorized in the 1960s that the processing power of semiconductor chips would double every 18 months. With the introduction of an increasing number of digital advisors and platforms over the past few years, I've started to consider whether we may be seeing Moore's Law hit the advisor space.

Traditional U.S. retail investment assets have been growing steadily, according to research firm Aite Group. But the assets managed by digital advisors are growing at a much faster rate. The market for digital advisors is growing exponentially, much like the increases in technological innovation described by Moore.

Businessman pointing at digital graph
Tuomas Kujansuu | iStock | Getty Images Plus

The primary driver of this growth seems to be demographics: The investor pool is changing dramatically as baby boomers start to draw down assets and assets begin to transition to Gen X and Gen Y.

Digital advisors typically offer automated investing, financial planning tools and investor education in a simple and engaging way. To some advisors I've spoken to, the growth of digital advisors has been reminiscent of how the retail industry saw online sites take business away from their brick-and-mortar stores.

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As a result, many advisory firms are considering how they can adopt some of these offerings to protect their assets. It is important to think about your particular firm, because digitizing your practice and evolving your model is not "one size fits all."

Here's a quick overview of the current landscape of digital advice providers:

  • Firms focused on online advice and financial planning that offer DIY investor planning tools, coaching and recommendations for saving, budgeting and investing. These include JemStep and LearnVest.
  • Firms—which include Betterment, FutureAdvisor, SigFig and Wealthfront—that are focused on online investment management and provide investment recommendations and offer trading, rebalancing and tax-loss harvesting services.
  • Firms—such as Betterment Institutional, Trizic, Upside Financial and others—that offer private-label capabilities to RIAs and broker-dealers in a business-to-business (B2B) model.

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Here are a few steps advisors should consider to help determine a solution that's right for their firm:

  • Define your target investors. Whom do you want to have as clients in the future, and what will those clients' needs be? Will there be a different level of client service at different asset levels, and will there be different levels of pricing? Do you have a clear vision of your target market or markets?
  • Then, what services will you offer, and what will differentiate you from your competitors? For example, will you offer investment management, financial planning and education?
  • Once the clients and services are outlined, consider whether your firm has the appropriate infrastructure—including compliance, staffing, workflows and technology integration—and think about creating a go-to-market strategy, including branding and messaging.
"Ultimately, the emergence of digital advice can provide an opportunity for traditional advisors to review their client segmentation strategy and their plans to engage younger clients and younger advisors."

There are a few advisory firms that have been pioneers in creating a digital advice model to supplement their "traditional" advice practice. For example, both Wescott Financial and Mariner Wealth Advisors/FirstPoint have created separate brands to attract emerging mass affluent and train younger advisors at their firms.

Because this process can require significant effort and investment, more solutions are being introduced to simplify the creation of these models for advisors.

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Ultimately, the emergence of digital advice can provide an opportunity for traditional advisors to review their client segmentation strategy and their plans to engage younger clients and younger advisors. Never before has there been this much choice in terms of models, platforms and solutions for advisors and investors alike.

In the end, the focus for these firms is how to create the best client experience in order grow their practice.

—By David Canter, executive vice president, practice management and consulting, Fidelity Institutional Wealth Services.