How to Create Your Own Robo-Style Investing Platform

If you ask financial advisors what they most enjoy about their work, many will say, “I love working closely with clients on their planning questions.”

Financial planning, and its associated problem-solving activities, brings joy to many advisors, along with peace of mind for clients.

But financial planning as a standalone business can be a challenge. That’s one reason many advisors also manage assets.

While having assets under management is a path to regular recurring revenue, it has its own challenges. Advisors are tasked with developing portfolios, ongoing trading, rebalancing and researching investments. These activities can be enormously time consuming.

Fortunately, advisors and other financial entrepreneurs are coming up with ways to streamline their own trading or provide solutions to other firms. That includes creating their own robo-style investing platforms.

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Alexander Fons, a financial advisor with Global View Capital Advisors in Waukesha, Wisconsin, describes his firm’s system for automatically allocating portfolios. It begins with a series of questions to develop a client risk profile.

From there, the firm assigns a client to a portfolio and uses automation to rebalance as needed.

“Since our models are tactically managed, on a daily basis our models are being monitored, so that if there is a signal hitting that day, our models redeploy the contents of the account to correspond to the updated signal,” Fons says.

Depending on market events, he says, the allocation could become either more aggressive or more conservative, within the parameters of the model.

This system allows the firm to serve clients with few assets to manage. “We are able to provide an actively managed account experience to investors with as little as $100 to start an account,” Fons says.

[See: The Best Robo Advisors of 2020.]

No More Cookie Cutters

Andrew Komarow, founder of Tenpath Financial Group in Farmington, Connecticut, turned to the Riskalyze Autopilot trading platform to create sleeves, or sections of a portfolio with specific characteristics. As a basic high-level example, an advisor could manage an equity sleeve for clients, or a fixed-income sleeve.

“We found that many robo advisors ‘cookie cut’ a portfolio,” he says, referring to the process of trading all accounts at the same time and in the same manner.

Komarow appreciates the customization allowed by implementing the sleeve system over a typical robo advisor.

“Robo advisors don’t let you have control over excluding a certain position,” he says. He cited a example of a client with four stocks he wants to keep and not sell as the portfolio is rebalanced. Komarow can lock those positions out from trading while the rest of the portfolio is rebalanced.

Brian Haney, founder and vice president at the Haney Company in Silver Spring, Maryland, thinks of his firm’s managed platform as “robo-plus.”

“We saw the robo trend as an opportunity for us to position ourselves more strategically and let people know that, while having a robot do everything might be fine for some, it can be nice knowing there’s an advisor behind it that can add a level of personalization, expertise and support,” he says.

[See: 7 Robo Advisors With a Human Touch.]

Problem Solving, Not Stock Picking

Today’s financial advisors typically spend the bulk of client work solving problems and developing financial plans. That’s a far cry from a few decades ago, when financial planning barely existed, and stock brokers picked individual equities for client accounts.

To create more efficiency on the planning side, Haney’s firm offers a subscription-based model.

“It is a 100% technology-based platform offering consumers two levels of advisory services for a stated monthly fee with no early terminations,” he says.

At his firm, clients pay a flat fee of $2,500 for a plan, or an hourly fee of $250, which is in line with the average cost nationwide. The firm is also launching a subscription service for clients who can’t pay $2,500 but still need the planning help.

Throughout the industry, the economics of asset management work against investors with accounts under certain minimums, whether that’s $250,000, $500,000 or $1 million. For advisors, it simply can be a poor business decision to take on clients with few assets to manage.

Fortunately, that’s changing. Greater automation is allowing advisors to work with clients with smaller accounts.

Julia Carlson, founder and CEO of Financial Freedom Wealth Management Group in Newport, Oregon, says her firm attracts clients with all sizes of investment portfolios.

“In order to serve clients with lower investment balances, we needed to find a way to scale this process and still run a profitable business,” she says.

Investing Smaller Accounts

Owners of smaller accounts are often younger investors, or even those who have been in the workforce for years, but haven’t yet saved much for retirement.

“Oftentimes, when you are starting out and in the accumulation mode as an investor, you just need to save money and invest in a solid diversified set of funds,” Carlson says. “Our platform does exactly this.”

Her system allows new clients to come on board themselves, without relying on help from advisory staff. That alone saves time for the firm. If clients have specific planning needs, or their portfolios grow and their needs become more complex, the advisory team can assist.

The onboarding process begins with an online portal, where new clients answer questions about their time horizon, goals and risk appetite. This generates an allocation appropriate for each situation.

“Our advisors will review this to ensure we feel the selections are right,” Carlson says. “This is where we are different than working with just a robo advisor. We provide access to a human advisor and oversee the account opening process to ensure they get the right mix of funds.”

She points out that a lack of investment education often results in a client choosing a portfolio that’s either too conservative or too aggressive for his or her situation. That’s where a human advisor adds valuable insights.

Outsourcing Is an Option

Haney suggests that advisors looking for their own version of a robo solution should understand what’s on the market.

“Advisors really need to look at the available wealth management and managed money platforms, as many can offer models and managed options that are very similar to what a robo advisor platform might be doing,” he says.

He adds that it’s crucial to know how to set up and properly monitor these account relationships since clients value the experience of getting advice from a financial planner.

“If your broker-dealer’s platform seems limited, then you may want to test the market,” he says.

With technology bringing investment management tools directly to consumers without the need of an advisor, “industry professionals need to adjust their services to maintain their competitive advantage and be relevant in the market,” Haney says.

Carlson also says the mix of automation and personalized advice allows her firm to maximize client relationships and welcome those with smaller accounts.

“Don’t underestimate the power of offering a digital platform. We’ve had clients start with a $5,000 Roth IRA and then transition into a full wealth management client and bring over $1 million for us to manage,” she says.

“It’s also helped us stay true to our mission of caring deeply about our clients and their financial lives and not turning them away,” she adds.

She recommends other advisors outsource as much as possible.

“There are many great platforms available. You don’t need to recreate it,” she says.

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