How Advisor-Directed Strategies Can Beat DIY Investors And Robos

Chris Latham,
Deputy Managing Editor, Wealth Solutions Report

Volatile Market Conditions May Have Clients Wondering Whether Their Advisors Are Worth It. Here’s How To Prove Your Value.

Wealth management clients might be worried about how runaway inflation and nuclear apocalypse would impact their portfolios, but chances are just as high that the main concern for financial advisors is how to keep those clients happy during prolonged periods of market uncertainty.

Will client portfolios survive?

Firms must figure out how to ensure that their advisor-directed investing strategies do not become compromised by self-directed “do-it-yourself” (DIY) investors, low-cost robo advisor platforms, as well as third-party solutions providers that serve both advisors and retail clients.

The key, experts agree, is for advisors and firms to differentiate themselves from the competition. Accomplishing that, though, is much more art than science.

Do-It-Yourself Investors

Although the equities freefall of the COVID-19 pandemic, as well as current volatility due to the Russia-Ukraine war and central bank interest rate hikes, was a wake-up call for many DIYers who sold out of stocks at greatly reduced prices, millions of investors still think they don’t need to pay advisors or can’t resist trading cryptocurrencies on their own.

Andy Watts, CFP, Vice President, Investment Solutions at
Avantax Wealth Management

Since clients often make emotional decisions in volatile markets, the financial advisor’s value is amplified during market downturns, according to Andy Watts, CFP, Vice President, Investment Solutions at Avantax Wealth Management, which operates a nationwide network of independent tax and financial planning professionals.

He argues that when the market drops 30%, clients will want advice that the DIY approach doesn’t have, answers to questions no software can anticipate and someone who has been alongside them every step of the way in building their financial plan.

“At Avantax, we believe that tax-focused advisors provide a unique value to clients beyond typical financial planning,” Watts says. “They can offer advice that helps keep clients from getting unexpected tax consequences. While you can’t control market volatility, you can control the tax implications inside your financial plan.”

Robo Advisors

Andy Aziz,
Chief Strategy Officer at d1g1t

Meanwhile, lots of today’s millennial and Generation Z investors who watched their parents suffer during the 2007-2009 Great Recession trust the automated portfolio management technology of robos more than human advisors who can barely beat the S&P 500 index and may or may not always have their best interests in mind.

Yet at least as many millennials and Gen Z clients want advice, in some instances more than baby boomers and Generation X do, according to Andy Aziz, Chief Strategy Officer at d1g1t, a Toronto-based wealthtech platform that provides firms with tools for analyzing clients, portfolios and the business itself. However, he warns, millennials and Gen Z clients will leave their advisor, despite good returns, if the digital experience is inadequate.

“This is critical when you consider the ongoing transfer of wealth from boomers to their kids and grandkids – most of whom will not tolerate anything but top-flight tech offerings,” Aziz says. “So, while advisor-friendly robos may be a good entry point, traditional wealth firms must step up their games to enhance the client experience and engage with the next generation.”

Michael Reisner, Co-President & Co-Chief Executive Officer
at CION Investments

Michael Reisner, Co-President & Co-Chief Executive Officer at CION Investments, an alternative investments platform that serves institutions, financial advisors and retail investors, agrees that robos can be a good entry point. Yet he adds that the threshold for turning to human advice is much lower than many financial professionals might think. “Robos can’t tell you when to sell your stock options or how to pay down med school debt,” Reisner says.

Third-Party Platforms

Then there are the potential double-edged swords of nationally known companies that provide a wide array of support for RIAs and financial advisors – from digital client onboarding and custodial services at Schwab to investment products and portfolio analysis tools at Fidelity – while also directly offering retail clients access to their own human and robo advisor services.

Is WebMD a threat to the
advice of a doctor?

Yet these firms may be how an investor first encounters an investment idea, Reisner says. Arguing that an analogous question is whether WebMD is a threat to the advice of a doctor, he notes that retail clients often learn about various direct-to-consumer (DTC) offerings then ask their advisors for more information about such products.

“The question leads to an in-depth conversation about why the product was appealing in the first place, which leads to the client investing in something similar through the advisor’s practice,” Reisner says.

“This could also be alternatives not available through a DTC, private equity, private credit, or real estate, or in the case of the limited alternatives currently available on DTC platforms, different products that are better suited to an investor’s goals.”

Advisor Differentiation

When it comes to standing out from the crowd, getting too creative with one’s wealth management or marketing strategy can be a red flag for clients – and regulators. (See our Bizarre Industry Bazaar column for abundant recurring proof of that.) Commodification and rapid advancement of technology also mean that no digital tool by itself can serve as a worthwhile differentiator for long.

Some technology providers are seeking to address these hurdles on the back end. For example, the wealth management performance optimization platform Practifi recently launched a data visualization tool, Practifi Propel, that aggregates data to uncover patterns about the advisor’s profitability, client growth and business pipeline.

In theory, the science of analyzing clients by age, location, goals, asset levels and portfolio performance would allow firms to get a better sense of which clients are more at risk of becoming DIY investors or using robos, as well as which clients would be open to making referrals to desirable prospects. These kinds of insights might be useful in combination with a time-tested approach for advisor differentiation.

The art of advice.

“First and foremost, the advisor needs to be available to their clients,” says Watts of Avantax. “And advisors need to be proactive, especially during market declines, by contacting clients and asking ‘How can I help you? Do you have any questions I can answer?’ ”

Then the advisor actually needs to be able to answer those questions and provide the relevant investment strategies to the client’s satisfaction. And that’s where the art comes in.

Chris Latham, Deputy Managing Editor at Wealth Solutions Report, can be reached at

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