Investment Managers must “Go Digital or Die”

The following is an excerpt of an article that I published in the March/April 2017 issue of Investments and Wealth Monitor,[i] We feel strongly that the sentiment is just as relevant today as it was then.

Fintech thought leader Paolo Sironi argues that for wealth management firms it’s “go digital or die.” Such a provocative statement may be fear-mongering, but it should not go unheeded. Sironi points out, “Nowadays, the unveiling of the asymmetry of information is forcing wealth managers to rethink their product-driven approach at a time of declining margins and establish a healthier relationship with final customers based on clearer client/portfolio-centric methods.[ii] In other words, the wealth management firms that will survive and thrive will be the ones that embrace automation in both their investment operations and digital delivery.

Digital Finance

A tax-efficient platform utilizing low-cost indexes to manage diversified portfolios in real time on an as-needed basis renders a comparatively high-fee, tax-inefficient pooled investment vehicle suboptimal at best and inappropriate at worst for the client. A skillfully constructed portfolio is important, but asset allocation portfolios have been commoditized and therefore lack the value they once had in the marketplace. Many firms grappling with whether to implement automated platforms are using traditional platforms and mutual funds to invest their clients’ money. Their long-standing reliance on mutual fund portfolios as a value proposition has a lot of inertia. But the very existence of these firms is at stake given commoditization and evidence that the primary tool for analyzing mutual funds is faulty. If investment management is meant to provide clients with the best opportunity to reach their goals, then automation is the future of investment management.


We don’t consider platforms such as [Charles Schwab’s] IIP, for example, to be automated advice. IIP’s primary value is providing rebalancing and tax-loss harvesting in the most efficient and beneficial manner possible. Automation maintains clients’ asset allocations, but financial advisors take responsibility for product due diligence and selection as well as portfolio construction.


We staff our business differently because of our aggressive adoption of automation. No one at SWS Partners has a book of business and we do not segment our clients by advisor. All our clients are clients of the firm and have access to all members of the firm as their needs may dictate. We can take this approach because our use of technology across our business allows us to efficiently manage our time and our clients’ time.

Our technology platform provides clients with 24/7 access to all pertinent information about their investment accounts, so we spend our time advising clients about the important issues rather than helping them merely understand what is happening in their portfolios. Therefore, our staff includes more professionals who support our advice model and fewer with an administrative or operational emphasis.

Our value proposition is advice, not legacy processes or procedures that can and should be automated. As margins continue to erode, we think this business structure will allow our firm to stand out.

We have found that clients, regardless of age or station in life, want their planning questions answered by the most-qualified person available. The key is being an empathetic person, not an algorithm.  That may mean working with an advisor with 20 years of experience on complex issues related to multi-generational planning or getting retirement planning advice from our 20-something financial planner when that meets their needs. As Michael Finke, PhD, CFA®, dean and chief academic officer at The American College of Financial Services, has pointed out:

At some point, we demand an empathic human who is compassionate and capable of coming up with solutions that account for our emotional and our quantitative needs. Research even shows that we prefer getting an imperfect recommendation from a human doctor to the perfect recommendation from an algorithm.

Age may be a common ground for connection between client and advisor, but it’s not necessarily for the reasons one may think. We find that SWS clients find comfort in the fact the average age of a member of our firm is the mid-thirties and, therefore, we will be with that client and their family for the foreseeable future. When you consider that the industry is aging out faster than it is adding new talent the advantage of youth is clear.

[i].     “An Interview with Michael Heburn, Philip Kessler, and Cam Goodwin: Charles Schwab Panel–Automated Advice,” Investments & Wealth Monitor 32, no. 2 (March/April 2017): 36–40.

[ii].    Paolo Sironi (2017), Fintech Innovation: From Robo-Advisors to Goal Based Investing and Gamification (West Sussex, UK: John Wiley &  Sons, Ltd.).