Fintech apps vs. human advisors
Whether they evoke curiosity or fear, fintech products have the profession’s attention. As apps like Robinhood become household names, many financial advisors are wondering if apps and software are coming to get our profession. Having worked on both sides of the equation, Natalie Taylor assures us that human beings will always play an important role in financial planning.
Finance is a vast marketplace, and Natalie points out that there’s room for both types of solutions. In a different context, she explains that TurboTax didn't put CPAs out of business. CPAs serve a different niche, and a different user. TurboTax’s ideal customer may be somebody who is a simple filer, with very straightforward income. Meanwhile, a CPA needs someone with more complex income and tax requirements.
However, it’s not just the complexity of a client’s scenario that can make human advising essential. There’s also the fact that financial life has so many different facets. Some are particularly well-suited to management by app and automation, and these spaces aren’t necessarily battlegrounds for professionals. Natalie says, “Fintech steps into a lot of places where financial planners don't. There's fintech innovation in banking, insuretech, employer wellness, and fintech in the debt space.”
There’s much to be valued about the human advisor relationship, including the connection and care a professional can give their clients. There’s also the conversation element that humans can’t have with an app. For example, if spouses are at odds about money, an advisor can facilitate, create space, and ask the right questions to help them get on the same page.
While technology may be able to help you identify some of your behaviors, your money scripts, or your money personality, we still need to have human conversations. Plus, with an advisor, you get a partner who can walk you through and contextualize the different financial paths that you could take.
How to compete with software pricing
“Fintech is going to spur growth on the advisor side to transform how we do business,” Natalie put simply. As advisors and professionals, we have to get really clear on what we do that's different from what technology can do.
Consumer apps do a remarkable job of providing some standard financial planning services. They can put together a portfolio of low cost ETFs, rebalance them regularly, harvest nonqualified accounts for losses, and keep them on a glide path to become more conservative. Today’s apps even coordinate from a tax standpoint, putting higher-growth assets in Roth 401(k)s, and lower-growth assets in pre-tax accounts. Natalie says, “If that's your value to the marketplace as an advisor, it’s the same value as WealthFront and Betterment. But they do it for a quarter percent.”
To compete with astonishingly affordable fintech services, Natalie recommends that advisors work hard on their value proposition, focusing on what sets them apart. She adds, “I also think you should think about bringing transparency to your fees.” You may not be able to compete with the compression and scalability of your robotic rivals, but you can embrace tech within your practices to make your work more efficient and be thoughtful about your pricing.
Natalie’s fee structure acknowledges the existence of competing tech. She says, “In my practice, my fees are on the planning side, because that's where I truly add value. But on the asset management side, my fee is 25 bps. I think that's fair, given what they can access in the marketplace. It's not as profitable for me, but I think that's what the market demands.”
Fintech for advisors
Although fintech is revolutionizing the way that clients manage their money, advisors are still stuck with frustrating, decades-old tools to support their client services. Natalie says this area is a huge opportunity for waiting for elegant new solutions.
“Twice this week,” she says, “I have talked to RIA founders who both told me separately that they're developing financial planning software.”
A lot of advisors are exasperated with the way that financial planning software functions. As most of us know, it’s very difficult to get something out of the existing technology that you would feel good about putting in front of a client.
That clunkiness is one of the reasons this fintech advocate doesn’t actually use financial planning software. Natalie admits, “I am unbelievably low tech. If I'm going to spend time investing in a learning curve and execution and all of that stuff, it needs to earn its place.” Tools like eMoney, Money Guide Pro, and Right Capital just don’t make the cut.
What does Natalie use instead? Excel spreadsheets. She tells Hannah, “I’ve created Excel workbooks that let me easily calculate college, retirement, life insurance, and refinance scenarios. They're really easy for me to manipulate. Those numbers feed directly into a deliverable template that I created that presents the information really well and helps to facilitate the kind of conversation that the client needs in that moment.”
However, she doesn’t judge other planners for using software, and recognizes it can have important functions. She says, “I work with a lot of 30- and 40-year-olds with young kids, and I'm not doing a lot of really detailed tax work or estate planning. If I was working with a different demographic, I think that planning software would become more important.”
Looking for a future in fintech?
If you’re considering a career in fintech services, expect the unexpected. Natalie says, “Having your CFP® matters, just like if you're going to go into private practice. That base level of knowledge and that credential really does matter in fintech.”
“In most fintech roles you will learn a ton about client centricity and how to use and leverage technology,” Natalie says. “But you may never learn how to read an investment statement or give detailed advice about ISOs, equity comp, or complex estate planning.”
If you’d like to learn more about fintech, Natalie suggests that you follow movers and shakers in that space. You can find her on LinkedIn. She also recommends keeping your eye on developments in common types of finance apps, like budgeting and debt management.
Above all, Natalie urges new planners to let values lead the way. Make decisions with a filter around what really truly matters to you, as it will help you find the right space for you in the profession. From there, you can craft a unique value proposition that can never be replaced by an app.
What You’ll Learn:
- What fintech is good at
- Where human advisors prevail
- Where the two don’t overlap
- How to compete with robotic rivals in the profession
- Why a fintech advocate has an astonishingly lean tech stack
- What to expect in a fintech career
In this episode of YAFPNW, Natalie Taylor, CFP®, BFA™, and Hannah Moore, CFP®, discuss:
Interested in following Natalie? Follow her on LinkedIn!