Fintech

Automated advisers attract much smaller clients than humans: Morningstar

Digital investment platforms with human advisers bring in account balances 10 times higher on average than regular robo-advisers.

Robo-advisers may not be able to compete with humans after all — at least when it comes to attracting clients with a greater amount of investible assets.

Largely automated online financial advice platforms are able to bring in clients with balances averaging about $25,000 to $35,000, according to Nicholas VanDerSchie, the head of adviser solutions in North America for Morningstar Inc.

At the same time, automated investment services that incorporate financial advisers more explicitly — such as Personal Capital and the Vanguard Group Inc.’s Personal Advisor Services — have been bringing in clients with account sizes 10 times larger on average, according to Mr. VanDerSchie, citing data tracked by Morningstar.

“Our average adviser brings on 12 new clients a month, and our average adviser relationship is over $300,000,” said Kyle Ryan, the head of advisory services at Personal Capital Advisors Corp., an online advice platform.

The automated investment service reported $1.2 billion in assets in its most recent filings with U.S. regulators, although that number has since grown to $1.5 billion, Mr. Ryan said. The firm told the SEC it has 58 employees who perform investment advisory functions, although that does not necessarily mean they all provide guidance directly to clients.

Mr. Ryan said that Personal Capital has been able to increase its advisers’ productivity because they generally meet with clients online. Personal Capital also offers private-client service, which includes retirement and estate planning, college savings and tax management, for customers with more than $1 million in assets.

Mr. Ryan said that for some of his competitors that are “pure” robo-advisers, “there is a question of the sustainability, the long-term viability of the model when you don’t charge that much, and they’re probably going to have to evolve over time.”

Both men spoke on a panel Thursday at the Morningstar Investment Conference in Chicago, adding a skeptical perspective to a debate over whether a group of highly publicized robo-advisory firms that build low-fee investment portfolios with algorithms can displace human financial advisers.

Given the high current costs of marketing and otherwise attracting new clients, robo platforms deployed by custodians, such as Charles Schwab & Co.’s Schwab Intelligent Portfolios, also enjoy a leg-up over counterparts that are largely start-up firms, according to Tricia O. Rothschild, the head of global adviser solutions for Morningstar, who also spoke on the panel.

Schwab launched a version of its Intelligent Portfolios platform for advisers on Tuesday.

Venture capitalists have been eager to back start-ups whose services do not rely on a large workforce of financial advisers. And Wealthfront Chief Executive Adam Nash, for example, has said his company’s costs are sustainable if it reaches its goals for asset growth.

But some online platforms have been keen to use trained financial advisers extensively, including Personal Capital, LearnVest and Vanguard. Many of their employees are credentialed financial advisers.