Robo-advice  

Understanding the new era of client relationships

  • To understand what is driving the trends in robo-advice.
  • To grasp how it can be used with investments such as ETFs.
  • To gain an understanding of how robo-advice recommendations still need to be in tandem with the human touch.
CPD
Approx.30min
Understanding the new era of client relationships

In Ridley Scott’s 1982 feature film Blade Runner, the slogan for the Tyrell Corporation’s product line of robots was “more human than human".

It is a striking epithet in a global economic system where high-frequency trading and autonomous algorithms are catchy headlines for regulators, advisers and investors, alike.

But overall, an existential moment is fast approaching for the investment community. 

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Ageing client bases are challenging business models, and of those models, new rules are redefining fundamental aspects, and given talk of interest rate moves and inflation hikes, it has never been a more dynamic time to be building and protecting portfolios.

Since the tapering of the recession, three key factors have changed the way advisers navigate relationships with their clients.

These are:

  • Increased volatility and no-safe-haven asset classes.
  • The increased popularity of new financial products.
  • The rise of machine learning and robo-advisers. 

In an age where technology shapes the way we approach the markets (and the markets are only as good or as fast or as smart as the tools that uncover unique opportunities), many in the investment management arena are looking to reform and re-shape the more human elements of it all, while still keeping a competitive edge.

It is, in fact, the word relationship that now means many different things for fiduciaries.

Beyond the complexities of understanding and executing client goals, we are also talking about the relationship that a portfolio has with the market, and the instruments therein, and even the tools to understand them.

It has always been the job of advisers to be objective and shore up client positions; to stay stolid in the face of challenging market conditions, or the hidden levers that alter them, while growing money - whether the client is an individual or an institution.

But today, the need for rock-steady stoicism or nimble efficiency-hunting might change on a whim, as the market dictates, with increased volatility or broader stagnation.

Advisers must help a client make those decisions, without bias or emotion. And ultimately, find yield.

Portfolio construction

Portfolio construction is still the keystone in this new era of adviser-relationships. But how it is constructed and relates to the market is the differentiator between building wealth and losing some of it.

While a growing number of wirehouses and independents are using robo-advisers to construct portfolios, the real trend in using robos is a more basic interest in how to ride out volatility through a combination of passive and active investing strategies, and how technology can make those strategies valuable.

Exchange-traded funds (ETFs) are a bright-eyed, living example of this trend.

According to FTAdviser's sister title the Financial Times, worldwide ETF assets have grown to $3.4tn in just the past eight years and now account for one third of all US equities volumes.