Here’s my thesis: Just as Amazon turned publishing upside down, an online competitor will do the same thing to financial advisers.
To explore that, I visited several wealth management websites. Robo-advisers charge from zero to 50 basis points, depending on assets under management. The low cost makes them formidable competitors. But what about the quality of their advice?
I completed a handful of asset-allocation surveys. The questions were surprisingly similar. What would I do, for example, if I lost 20% of my portfolio during turbulent markets? Would I 1) sell stocks, 2) buy stocks, or 3) ride it out?
Ernest Hemingway once said, “The best way to find out if you can trust somebody is to trust them.” To paraphrase him, the best way to know what you will do if you lose 20% is to lose 20%.
Regrettably, I know. I’m still licking my wounds from the crash of 2008-2009. So I completed the questionnaires with the benefit of perfect hindsight. It’s interesting what a questionnaire can reveal about your inner self before you even know it! Surveys and questionnaires are very important to make as they can help people/businesses/companies gauge what to do and where to go, nowadays, any business who wants to make a questionnaire, etc. can look at this and see how it can be done, saving them the hassle of doing it all themselves so they can correlate the data faster. So we will keep doing surveys and questionnaires because it can lead to positive outcomes… hopefully.
Bari Goodman
The results really surprised me. There was so much “sameness” to the online forms, but the recommendations differed substantially.
One site created a portfolio with 40% allocated to fixed income. Another indicated that 11% was plenty. Some recommendations included an allocation to alternatives. Others didn’t. U.S. equities varied from 25% to 48%.
“Ah-hah,” I thought. There is no way to understand somebody’s risk profile without the iterative, time-consuming process every adviser goes through with his or her clients. That is where advisers add value.
I called James Carlson, Chief Product Officer of Questis. His website asks eight questions and delivers portfolios within seconds. He would defend, I assumed, the new, new way of doing things.
Not quite.
“The robo-adviser isn’t the solution,” says Mr. Carlson. “You need the right balance of humans and algorithms.” His company offers a hybrid model to clients. For Questis the questionnaires are a first cut at give-and-take dialogue, which leads to thoughtful, asset-allocation recommendations.
“Phew,” I thought. “There will always be a place for financial advisers even if our compensation models come under pressure.”
Not so fast.
Amazon changed publishing because it looked at the world in an unexpected way. E-readers, for example, revolutionized the way we think about books. What if an organization approaches investors with a tool other than questionnaires, something outside the box? Or compensation models based on a formula other than assets under management?
These questions led me to BidnessEtc.com, a hip new website that discusses individual stocks. The graphics look more like something you find in a comic-book store than a ho-hum-if-I-read-another-disclaimer-I’ll-scream financial website.
Continue reading on the Wall Street Journal.
The New York Times describes my novels as “money porn,” “a red-hot franchise,” and “glittery thrillers about fiscal malfeasance.” Through fiction I explore the dark side of money and the motivations of those who have it, want more, and will steamroll anybody who gets in their way.