Episode 2: Define Your Superiority
In Episode 1, we discussed how elite Advisors are focused on achieving client goals while living in a rapidly changing environment – today many investment services that were once high value are now freely/cheaply available. (To read Episode 1, click here.)
In Episode 2, we want to describe what sets Advisors apart from the robots, and highlight client motivations for investing (with people!). Most importantly, we offer ideas for how Advisors can cement their advantage over the robots by improving the overall client experience.
1. Be the general contractor: When building a house or completing a large renovation, an early-stage decision is whether it is better to hire a contractor to execute the work for a fee or to simply do the work yourself. A main motivation for hiring a professional is the peace of mind provided to you by the professional’s expertise in project management, namely their ability to address concerns while staying on time and on budget. It is the desire for a good experience and the increased confidence that your goal will be realized that justifies the added expense.
2. Remind them you are human: A large part of providing an enjoyable experience is the human element. This is something that no robot can provide or even simulate effectively (at least not yet). A well-timed hand-written note, attending a wedding or funeral, helping a client stay the course or find ways to save money are just a few examples of the competitive advantages Advisors have over the robots. Picking the hot stock or trying to beat the market is exciting and may seem like the best way of growing your clientele, but it detracts from an Advisor’s highest impact activities - proactive communication and relationship-building. Studies show that these are the distinguishing characteristics of elite Advisors…not asset management. In fact, when trying to do two things well at the same time, both usually end up below average.
3. Focus on achieving goals: If the uniquely human aspects of the advisory business are the most important and occupy a majority of time, do Advisors then have to sacrifice delivering superior investment performance? Answer – No, if the right processes (and/or partnerships!) are in place. To understand where the human and robot elements intersect for Advisors, one must analyze the motivations for investing in the first place. Reasons abound, but at the highest level an elite Advisor focuses the clients on a financial goal such as those below:
- Retire comfortably
- Create income for spending
- Fight inflation
- Provide a legacy
How should elite advisors then measure the achievement of financial goals? The market can exhibit wildly various behaviors within any timeframe. In any ten-year period going back to 1950, investors could have had investment results ranging from excellent to awful. Investors and even Advisors have zero control over how the markets will behave when they choose to invest; all they can hope to do is optimize the performance of their account over this random window of time. An elite Advisor recognizes this and will utilize a process that does the following for clients, no matter the hand they are dealt in terms of market conditions:
1. Improve the odds of making the ‘goal’ return
2. Significantly reduce or eliminate outcomes that would cause financial distress
3. Reduce or eliminate the amount of time that the client’s investment is ‘off-track’ from reaching the goal, reducing the need for lifestyle changes
4. Better yet, do all 3 to reduce stress and improve the ‘experience’ of investing
If the items above are characteristics of an elite Advisor from an asset management perspective, then what are the market metrics that measure them? For number 1, it is the compound growth rate of capital over the period in question. For numbers 2-3, it is the maximum drawdown and volatility of the capital over time. The combination of these will accomplish number 4.
At Blueprint we have substantial evidence of a better process to help elite Advisors stand apart from the robots and help investors achieve their financial goals. Our process also levels the playing field by utilizing technology to make Advisors more valuable and efficient rather than attempting to make them obsolete. From automated rebalancing and tax efficiency to utilizing almost exclusively commission-free and low-cost ETFs, Blueprint incorporates all the latest asset management innovations of the ROBOTS while providing much more in terms of risk management.
For all the operational and cost efficiency robots and passive indexes provide, they simultaneously suffer from a severe lack of risk management. We will discuss further in Episode 3: Exploit Their Weaknesses.
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