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If you ask a group of advisors what they do really well, most often client communication tops the list.
The reality? For most advisors, how they communicate with clients is stuck in the past, a throwback to the pre-Internet days of the 1980s and early 1990s. That’s why advisors can learn from Vanguard, whose advice platform is adding $5 billion in assets a month, in part by making videoconferencing a core part of how it communicates with clients.
The Vanguard advice story
When you look at how advisors communicate today, the focal point is regular face-to-face updates and annual reviews, supplemented by periodic phone calls. While advisors have replaced printed newsletters that go out in the mail with online newsletters; and some send out weekly emails, for the large majority of advisors, the most important way that they communicate with clients is still their face-to-face meetings. As a result, when it comes to their personal interaction with clients, most advisors make little or no use of technology. Contrast that with the success of Vanguard’s Personal Advisor Services in using a hybrid digital and personal approach to deliver advice. Fueled in part by research that 60% of Baby Boomers use an advisor to inform their investment decisions, Vanguard began piloting this service in the 2013, offering personal advice to clients with at least $100,000. With a particular focus on investors planning for retirement, for an annual fee of 30 basis points, clients get:
Vanguard provides an ongoing relationship with an advisor, delivered by phone and videoconferencing over their computer. There is no limit to how often clients can contact Vanguard advisors with questions.
During the onboarding process, clients and advisors work to create a goal-based financial plan. A key focus of this plan is on retirement planning, with a customized, tax-sensitive, total-return drawdown strategy aligned with clients’ financial goals. Some of the issues that advisors discuss include maintaining clients’ lifestyle in retirement, incorporating Social Security benefits and planning for future medical costs, college tuition for family members and bequests.
- Portfolio construction and rebalancing
Using principles of strategic asset allocation and implemented with Vanguard funds, a diversified, low-cost and tax-efficient portfolio is developed for each client. And as markets move, portfolios are rebalanced every 90 days, creating an opportunity for advisors to reach out to clients.
During its initial two year pilot, assets in Personal Advisor Services grew to $7 billion. In May of 2015 Vanguard lowered the minimum for this service to $50,000. Clients at that level of assets were assigned to a pool of advisors that they could contact with questions. Clients with accounts over $500,000 were assigned to a dedicated advisor who became their ongoing point of contact.
In March of this year, less than two years after lowering their minimum, assets in Vanguard’s Personal Advisor Services program had grown to $65 billion. Since then, they have grown by $5 billion a month, reaching $93 billion by the end of September.
A number of factors contributed to Vanguard’s success: The power of the Vanguard brand, the offer of a financial plan, the large client base from which to draw and the low 30 basis point fee all were important elements in the growth of its personal advice platform.
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But an important ingredient from which advisors can learn was the ability for clients to use technology to interact with advisors.
Today 35% to 40% of interactions on Vanguard’s advice platform take place via Skype, Facetime and other videoconferencing tools, often incorporating screen sharing so that the advisor and client are looking at the same information on their computers. Adoption of videoconferencing cuts across demographics and has been well-received by older clients, assisted by the ease of use of Vanguard’s platform and client familiarity with tools like Skype from their communication with family members.
Another hybrid advice success
While Vanguard’s success has drawn industry attention, there is another lower profile success story that uses a hybrid digital advice model to target million-dollar clients and from which advisors can learn.
Personal Capital was founded in 2009 by Bill Harris, former CEO of Paypal and Intuit, as one of a group of what have come to be called robo-advisors. Recently crossing the $5 billion threshold in assets with 13,000 clients, Personal Capital stands out in a number of ways, not the least of which are its fees. Personal Capital charges fees that resemble traditional advisors. For up to $3 million dollars, it charges .89%, dropping to .79% for clients over $3 million and scaling down to .49% for assets over $10 billion. As a result of its fee structure, Personal Capital generates more revenue than Betterment and Wealthfront combined – while those two firms have higher profile and total assets of $17 billion, their lower fees generates less revenue.
Clients with over $1 million fall into Personal Capital’s private client group, where each client is assigned to two advisors. Regular communication takes place via videoconferencing, using Facetime and ClearSide for screen sharing, where clients have access to the advisor’s complete financial dashboard. While requests to meet face-to-face are accommodated, these are rarely requested, although Personal Capital does offer personal contact through periodic group presentations in major cities, in which speakers discuss current events and portfolio strategy.
Based on its website, the advice that Personal Capital advisors offers is not fundamentally different from what you’d see with good quality advisors in the industry at large. In addition to constructing portfolios of ETFs and individual stocks, Personal Capital’s advisors will talk about:
- College savings and 529 planning
- Tax loss harvesting and tax location optimization
- Private banking services
- Estate, tax and legacy portfolio construction
- Donor-advised funds
- Private equity and hedge fund holdings review
- Deferred compensation strategy
- Estate attorney and CPA collaboration
If the advice isn’t different, what accounts for Personal Capital’s success? The answer is that Personal Capital stands out for its use of technology to deliver that advice. Another unique feature is the comprehensive suite of personal financial planning tools that it offers free of charge as a lead generation tool. Today over 1.5 million investors use its financial software and free tools to track their personal finances.
In a September article in his popular blog, The Nerd’s Eye View, industry observer Michael Kitces had this observation about Personal Capital:
As a result, when measured by revenue (instead of AUM), Personal Capital has slightly more revenue than Wealthfront and Betterment combined (as $5B of AUM at 0.89% is more revenue than Wealthfront and Betterment’s combined $17B of AUM at only 0.25% in fees), and with dramatically more affluent clientele (as 39% of Personal Capital’s clientele are over $1M of AUM, also known as it’s “Private Client Group”). Which simply reinforces that, similar to Vanguard Personal Advisor Services and Schwab Intelligent Advisory, it’s the human-based-and-tech-augmented platforms that are really generating the most actual revenue growth from consumers, while the pure robo-advisors continue to struggle with client acquisition costs and see growth slow..”
You can read more of Kitces’ commentary on Personal Capital at the bottom of this article.
Making digital advice work
This is part of a series of articles on the necessary changes for advisors to thrive in the period ahead:
Just as you need to think differently about focusing your business and dealing with top clients, so you need to rethink how you build digital advice into your client communication. There are three tactical aspects to making digital advice work.
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Screen sharing. I’ve talked to some advisors who’ve used Webex and GoTo Meeting to share their screens with clients and essentially to “take over” client’s computers, walking them through presentations. Among the advantages of this is getting clients to focus on key points that the advisor is making as well as the ability to simultaneously communicate with spouses at separate locations. One advisor talked about regularly booking meetings with busy couples over their lunch hours, something that fit into their schedules and his as well. I’ve recently talked to a couple of advisors who have moved to ClearSlide, since it avoids the need for downloads and poses fewer problems with company firewalls as a result. This is the same tool used by Personal Capital.
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Helping some older clients get comfortable using videoconferencing technology. One advisor has an associate offer monthly tutorials in their boardroom for older clients looking to get up to speed on using their computers. Some advisors go beyond this to offer one on one help; my article, How a Teenager and Skype Deepened Client Relationships,outlined how one advisor had his teenaged son working in his office one summer and ended up having his son make house calls to help older clients get set up on Skype, both to communicate with family members and with this advisor.
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Get personal You want to make your Facetime, Skype or ClearSlide conversations feel as much like face-to-face meetings as possible. That means you canvass clients in advance on the issues they’d like to talk about and put together an agenda reflecting those issues that you send beforehand, just as you would in a face-to-face meeting. Don’t talk more than half the time and ensure that clients are engaged through questions that you ask, just as you would in a face-to-face meeting. Finally, send clients an email summarizing next steps coming out of your conversation, just as you would after meeting in person.
Online conversations will never entirely replace in-person meetings – there’s a unique dynamic to the informal back and forth when you’re face-to-face that digital conversations can’t capture. That’s why you still want to schedule annual face-to-face meetings for every significant client to deepen bonds and ensure that you’re on track.
But more and more, the conversations between those face-to-face meetings need to be supplemented by digital conversations that will engage clients and resonate in a way that telephone updates won’t. Next week, I’ll talk about one of the single most important questions that will define the success of your business going forward.
Michael Kitces on Personal Capital (September 2017)
This month, cyborg advisory platform Personal Capital announced another $40M round of capital, an extension of the prior $75M commitment that IGM made as part of the company’s Series E round last year (released in tranches last May and December). The new round of capital coincides with the news that Personal Capital crosses $5B of AUM this month (up from just $3B a year ago), and will reportedly be used to hire additional operations and more financial advisors in offices around the country (including Dallas, Atlanta, New York, LA, and Chicago) as the company continues to scale up.
And notably, while Personal Capital is often compared to other “robo-advisors”, in reality it’s still a human-based advisory firm simply using technology to communicate with clients (i.e., a “cyborg” advisor), and is also charging “human advisor” prices, with a fee schedule that starts at 0.89% for the first $1M. As a result, when measured by revenue (instead of AUM), Personal Capital has slightly more revenue than Wealthfront and Betterment combined (as $5B of AUM at 0.89% is more revenue than Wealthfront and Betterment’s combined $17B of AUM at only 0.25% in fees), and with dramatically more affluent clientele (as 39% of Personal Capital’s clientele are over $1M of AUM, also known as it’s “Private Client Group”). Which simply reinforces that, similar to Vanguard Personal Advisor Services and Schwab Intelligent Advisory, it’s the human-based-and-tech-augmented platforms that are really generating the most actual revenue growth from consumers, while the pure robo-advisors continue to struggle with client acquisition costs and see growth slow.
Although in truth, Personal Capital’s greatest innovation is not its advice delivery model, but simply its unique client acquisition strategy of developing an industry-leading Personal Financial Management (PFM) app, giving it away to consumers for free, and then contacting every user that meets their minimums to solicit them for advisory services (which Personal Capital states is converting at a 6% rate!); what other advisory firm in history has the means to ensure that 100.0% of its high-volume purely-inbound prospects are (pre-)qualified before ever talking to them!”
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
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