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.

Despite renewed criticism of ETFs in some arenas, there are definitive reasons for accelerated growth.

But a basket of stocks isn’t a new idea. And ETFs themselves have been around for three decades.

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What is new is how advisers are using these instruments to bring steadier yield to a given portfolio, growing their clientele through a financial product geared towards Generation X and Millennials, and even allay some of the behavioural biases and emotions that investors may display, which could otherwise chip away at longer-term portfolio viability. 

But just because you bought a fishing net, does not mean you will be catching fish. Simply buying a basket of stocks, put together by some algorithm, does not mean the end investor will be getting what they actually need to meet their long-term financial goals.

That said, let us explore how investment platforms could help financial advisers when it comes to choosing ETFs within an overall portfolio.

ETFs offer a unique flexibility to move in and out of the marketplace. Depending on the product, you can track an index, a country, an asset class, or even particular market segments, all inside of a tax-efficient wrapper.  

As it stands today there are about 2,000 ETFs that are traded in the US. There are several issuers - such as Invesco, Vanguard, and BlackRock - leading the charge to educate advisers about ETF portfolio construction by providing powerful tools and industry resources.

The ETF boom has also opened the door for several innovative vendors to provide technology-based, unique screening tools for ETFs, as well as proprietary ranking systems to help advisers and investors screen and rank the performance of various ETFs.

Identifying trends

Many organisations use technical analysis to identify leadership trends within the market, across asset classes.

Specifically within that technique, Point & Figure technical analysis - a methodology that dates back to the late 1800s - is a logical, organised way of uncovering the imbalances between supply and demand in the marketplace.

This is achieved by charting the price action of individual securities, ETFs, mutual funds, commodities, and currencies. Additionally, managers should perform relative strength analysis on all of these securities.

Times have changed, however. For example, back in 1987, this process was not automated. We calculated 200 relative strength charts by hand each week. Through the use of technological advancements, today we calculate more than 10 million relative strength charts every single night.

And that sort of technological advancement is critical, because better, faster software means that, within minutes, a fundamentally recommended list of stocks can be loaded into a platform, and relative strength can apply to the whole list to identify which of those fundamentally-sound names are technically sound.