Advisers disagree with Kitces' take

May 13, 2012 @ 12:01 am

By Davis Janowski

A technology-centric advice business that could leave traditional planners “in the dust” — a future envisioned by adviser Michael Kitces — is unlikely to unfold, according to many financial advisers and industry observers.

The biggest competitors for planning clients in the future — especially for Generation Y prospects — will be tech companies and “virtual platforms” that give information-hungry investors the tools and advice that they seek, Mr. Kitces, director of research at Pinnacle Advisory Group, and an influential blogger, said last week at the Financial Planning Association's Retreat 2012 conference in Scottsdale, Ariz.

“Baloney,” volleyed Mark Hurley, president of Fiduciary Network LLC.

“Wealth managers are fundamentally financial physicians,” he said.

“You can't teach a machine to do that,” Mr. Hurley said, adding that years of experience and reasoning one's way through myriad and often unexpected complexities give advisers the perspective required to help clients.

Forrester Research Inc. analyst Bill Doyle said predictions that technology will usurp human advice are nothing new.

“The funny thing is that this has been happening for many years,” he said.

“Well before, for instance, there were many other services, like Financial Engines [Inc.], founded by Nobel laureate Bill Sharpe, which offered online advice. But that firm has tacked away from its original mission and today is addressing the 401(k) space,” Mr. Doyle said.

He noted that while many startups may be catching the imagination of the media and younger investors, one “old-guard firm,” Fidelity Investments, has been providing online advice for more than a decade through its Retirement Income Planner.

“It is not an all-or-nothing proposition,” said David Tittsworth, executive director of the Investment Adviser Association, who recalled that when he started in his position in 1996, there were virtually no advisory websites. Now everyone has a presence online.

“There is room for a lot of different models; the bottom line is that people are looking for trusted advisers and that those advisers need to adapt to their client's needs,” he said.

New offerings from Betterment LLC, HelloWallet, Personal Capital Technology Corp. and others shouldn't be seen as threats but rather as tools that should be adapted for use by advisers, observers said.

“It may sound kind of perverse, but these new services will benefit face-to-face advisers,” said Sheryl Garrett, founder of Garrett Planning Network Inc., a team of financial advisers who work primarily on an hourly basis.


“By making services available in a virtual or online low-cost, high-quality way, I actually see that as helping the industry grow,” she said, adding that among the Gen Y population, such tools are the preferred means of being introduced to planning.

In other instances, such as for those who live in rural areas, for example, online access may be the only game in town, or at least a likely conduit to video advising.

Perhaps more important, Ms. Garrett noted that these tools should be used by advisers to save them time on “grunt work,” including data entry.

As a stand-alone business, online advice has proved to be a difficult.

Boulevard R, which began in 2007 as an automated online system, has since morphed into a tool for advisers.

“Advice is a relationship-driven business, because as people's assets grow and investments get more complex, they want the human touch. That makes it hard for services that try to totally disintermediate the adviser,” said Matt Iverson, Boulevard R's chief executive.

Given that difficulty, hybrid models, such as that of startup Veritat Advisors, which mixes online tools with human advice through quarterly phone and online meetings, seem more likely to gain in popularity, Ms. Garrett said.

Market segmentation may provide direction, said Alois Pirker, research director at Aite Group LLC.

“When you go down to the investor with $250,000 in assets, the key is simple planning,” which technology can be taught to do, to a certain extent, he said.

“When you go upstream, clients are much more focused on particular problems that need to be solved. That's where you need a specialist,” Mr. Pirker said.


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