As a senior financial planner for Betterment, Nick Holeman, 27, is one of hundreds of financial advisers working with thousands of clients in a novel way — as a complement to a robo-adviser. But his financial advice career began in the most traditional of circumstances.
He started as a paraplanner at a broker-dealer, joined an insurance firm as a financial adviser assistant, and then moved to a registered investment adviser as a planning specialist. He loved the fiduciary approach at the RIA, but the firm's asset minimum for clients and focus on retirees meant he couldn't help friends and family, which was his original motivation for seeking a career in financial advice.
It was only after opening a personal account with Betterment "to test it out," that he realized this new hybrid model of advice offered him the perfect role. With the digital platform taking care of client acquisition, investing infrastructure, compliance and other operations of an RIA, Mr. Holeman gets to spend time doing what he loves most: He works 100% of the time with clients, even those like his mom and neighbors who don't have millions to invest.
"It's a different way to interact with customers, but being able to help as many people as possible and do it in a way that's free from conflicts of interest, that has more than made up for me not being able to go to ball games with clients," Mr. Holeman said.
Luring advisers to their ranks
The so-called "hybrid robo" model, which pairs automated investing algorithms with financial advisers, is increasingly attracting advisers looking for a career in financial planning without the demands of selling products or finding new clients. These professionals are walking away from job opportunities at wirehouses, RIAs, banks and insurance companies because they appreciate the hybrid model's innovative technology. They also earn a salary that doesn't dip if commissions dry up, and get to work with a broad range of clients.
"The great thing about the digital approach is it allows for us to leverage technology to reach a group of clients that may not have had access to financial planning, or may not know where to start," said Andrew Porter, 36, a planning consultant with Charles Schwab's Intelligent Advisory.
The hybrid robo advice model — championed by Vanguard Personal Advisor Services, Schwab Intelligent Advisory, Betterment Premium and Personal Capital, among others — also has proved popular with clients.
Analysts and industry observers believe hybrid robos are the future of financial advice: the logical conclusion of a number of industry trends including digitization, fee compression and the move toward fee-based, fiduciary advice. An Accenture survey found that 68% of emerging wealthy and high-net-worth investors prefer a hybrid robo model to a traditional advisory relationship. MyPrivateBanking estimates hybrid robos will manage 10% of total investible wealth in the U.S. by 2025, while purely digital offerings will manage 1.6%.
Not all firms are on board with the hybrid model. Wealthfront, one of the largest independent robos, remains committed to purely digital service. The company believes automation is the best way to help young people save more and cites internal data showing its advice engine, Path, helps clients increase savings an average of 28%.
"We're focused on the millennial generation — a generation who does everything on their phone through some type of app," Wealthfront spokeswoman Kate Wauck said in an email.
Adviser quality questioned
Some critics question whether hybrid robo-advisers, which charge less than traditional advisers, can afford to pay for high-quality advisers.
Some argue that there's a ceiling on the quality of advice a hybrid robo can offer because of the cost of hiring experienced advisers. Critics allege they are just a modern version of call centers, with inexperienced staffers cutting their teeth in the industry by reading from a script and answering basic questions.
Steve Lockshin, principal and co-founder of RIA AdvicePeriod, tried out one of the largest hybrid robo-firms and called it "a horrible experience."
"I [invested] the minimum requirement to get the service level, and they ran me through the bare minimum service," Mr. Lockshin said, without revealing which firm he tried.
Mr. Lockshin questions how the startups in particular will be able to compensate advisers and keep them from going independent or joining a new hybrid launched by a large financial institution with much deeper pockets. He remains bullish on digital advice — he was an early investor in Betterment and uses it at AdvicePeriod — but he said the reality of the industry is that high-quality advisers don't always correlate with successful advisers. Most people are still motivated by money, and he wonders if the talk about wanting to help people is a euphemism for "wasn't good at selling."
Greg DePalma, 33 Manager, Personal Capital Private Client Group Denver Years in industry: 7 Certification/designation: CFP, Series 66 "All I have to do is provide excellent financial advice that's in the best interest of the client I work with. I don't have to sell people on joining Personal Capital, and my paycheck isn't dependent on drumming up new business."
Nick Holeman, 27 Senior financial planner, Betterment New York Years in the industry: 6 Certifications/degree: CFP, EA, MSBA "The reason I got into personal finance as opposed to corporate finance is I figured Microsoft or Google would be OK if I wasn't managing their money, but my mom or my neighbor might not be. Financial planning has more of an impact, and Betterment propels that for me."
Andrew Porter, 35 Financial planner, Schwab Intelligent Advisory Phoenix Years in industry: 11 Certification: CFP "[Technology] allows for us to really automate as much as we can, really focus more on the conversation about the clients' overall passions and financial goals."
Julie Virta, 46 Senior financial adviser Vanguard Personal Adviser Services Malvern, Pa. Years in industry: 24 Certifications: CFA, CFP, CTFA "The technology is really giving you the overall benefit of supporting all of those day-to-day functions and giving you the efficiency to spend more time with your clients and less time with the actual number crunching."
Companies like Betterment and Personal Capital might "have to go to war for talent" and beef up the benefits they offer, agreed Bill Winterberg, founder and CEO of FPPad. However, he doesn't think the competition will come from the wirehouses.
"Just from a generational perspective, these advisers are turned off by the sales model," he said.
Instead, the startups will compete with large, digitally powered RIAs like Edelman Financial Services, which recently merged with Financial Engines.
Robo-advisers all have different business models and pricing structures for their hybrid robo-offerings, but representatives at each of the main companies said that their advisers range from fresh college graduates to long-time veterans, and that they are not worried about being able to keep their advisers happy.
Personal Capital's director of advisory service, Amin Dabit, said his advisory team is not staffed exclusively by recent graduates. While there are some associate-level planners who work with smaller clients, others are industry veterans with experience working at Vanguard, Edward Jones and Merrill Lynch.
All Personal Capital advisers working in the Private Client Group, a service reserved for clients with $1 million or more, are senior advisers with a certified financial planner designation. Clients with $200,000 up to $1 million get access to two dedicated advisers, while clients under that can call into a team to schedule meetings or ask basic questions.
The companies would not provide specifics regarding compensation. But they said that in-house advisers are all salaried employees. To help retain workers, Personal Capital offers equity ownership in the company and offers to pay for costs associated with earning a CFP designation.
Personal Capital also separates business development and sales from the advisory team, so advisers are exclusively client-relationship managers. This creates an environment that Mr. Dabit said is more attractive to next-generation advisers than many traditional firms.
"The big wirehouses are trying to change their model and perspective for how to bring in new advisers," Mr. Dabit said. "We're better structured for the future … and where the new, fresh blood in the industry is going to be."
Supporters of hybrid robos doubt an independent firm will be able to replicate the technology experience they offer advisers and clients.
Greg DePalma, a 33-year-old senior financial adviser at Personal Capital, decided against starting his own advice firm after joining the hybrid robo 4½ years ago.
"In order to compete five, 10 and 20 years from now, companies need to have the best technology and a team of highly skilled professionals," he said. "It's daunting to think about building that technology from scratch."
Mr. Lockshin said until there are significant shifts in the financial services industry at large, there will still be plenty of advisers motivated more by monetary gain than the prospect of helping people, whether they come up in a hybrid-robo or a traditional brokerage. But he does agree that robo-advisers are broadening the career path for advice professionals, which is a plus.
"If my son wanted to go into financial services, I would tell him to work at one of those places," Mr. Lockshin said.