Technology Update

'Robo-advisers' are changing landscape

But executives think that by 2020, the majority of wealth management will still involve real, live wealth managers

Oct 20, 2013 @ 12:01 am

By JP Nicols

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In my last blog post, I asked the question: Is there a place for personalized service in the digital world?

And in it, I discussed the so-called new breed of technology-driven online “robo-advisers” and how they are changing the competitive landscape, whether or not traditional financial advisers like it or even realize it.

This month, I attended Money2020 in Las Vegas to hear directly from some of the robo-advisers themselves. Most of the conference focused on new technologies in payments and e-commerce, but one -session, “Emerging Wealth Management Solutions,” featured Asset Vantage chief executive Sunil Dalal, LearnVest CEO Alexa von Tobel, Personal Capital CEO Bill Harris and SigFig CEO Mike Sha.

One of the most surprising things from the session was that Mr. Harris, Mr. Sha and Ms. von Tobel all felt strongly that by 2020, the majority of wealth management will still involve real, live wealth managers.

Also notable was the fact that despite all of the firms' heavy investment in technology, that wasn't what the panelists focused on in their discussion, at least not in the context of better trading algorithms or more-sophisticated asset allocation models. Instead, they focused on how they deploy technology to reduce investor expenses and overcome the common failures of human behavior — in other words, some of the same things that any good adviser should be focused on in their own practice.

Ms. von Tobel said, “Money is 10% math, 90% emotion,” and de-scribed her firm as “Weight Watchers for the finance space.”

Spend less, save more

I like that analogy because the basic formula to lose weight is deceptively simple: Eat less and move more.

Yet people spend billions a year on gym memberships, workout gear and diet books.

And yes, on trading advice, financial plans and investment seminars, too. All the gadgets and bells and whistles are alluring, but the basic formula for building wealth is simple, too: Spend less and save more.

Setting aside Mr. Dalal, whose firm has a different hardware and subscription-driven model, and who is less optimistic about the future role of advisers, the rest of these disruptive asset managers are all registered investment advisers.

Different model

They are in the same business as most of us. They just have a dramatically different service delivery model, and they have collectively raised more than $100 million in capital that is betting that their model wins over the long run.

I think that they will win if they can convince people to actually change their behaviors. They have the advantage of leveraging their technology to give regular feedback at a scale not possible for most individual advisers.

The Nike Fuel Band and competitors such as Fitbit Inc. have helped thousands of people tune into their caloric intake and level of activity needed to burn off the excess. Maybe the next generation of advisers will be able to help investors avoid costly mistakes in their financial behavior, too.

As Mr. Harris said, “the biggest problem is inertia, and technology alone won't help that.”

JP Nicols is chief executive of the research and innovation firm Clientific LLC and a partner at Bank Solutions Group.

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