Rolling out robo-advisers has been challenging for early adopters

For early adopters of automated portfolio management tools, folding the robo technology into their practices often didn’t go as planned.

Many advisers said the early days of the robo-advisers for advisers were marred with frequent technical difficulties. Even after the vendors ironed out many of the kinks, obstacles involving pricing, client segmentation and marketing have kept advisers from the promised land of an efficient, automated platform to attract and serve mass affluent clients.

Ritholtz Wealth Management’s experience launching a robo-adviser five years ago was a “disaster” because the software simply didn’t work, said Josh Brown, CEO of the advisory firm, speaking at the Inside ETFs conference this week.

Chris Chen, CEO of Insight Financial Strategists, said things can vary from robo to robo when it comes to things like client onboarding, uploading client portfolios and trading.

“We found out after the fact that our robo provider would essentially execute orders over a period of time. Not minutes, but days, because of its own limitations, which still haven’t been fully disclosed to us,” Mr. Chen said in an email. “It’s a major issue, especially if there is a panicking client in a down market.”

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He’s waiting for his vendor to fix this trading concern before he starts using it to manage existing clients. He would also like the vendor to add support for fractional share trading to make it more viable for smaller accounts.

The primary challenge until just two or three years ago was the startup technology’s ability to integrate with an adviser’s custodian, said Gavin Spitzner, president of adviser consulting firm Wealth Consulting Partners. The digital advice platforms were also just new products that needed time to mature, he said.

Today, the trouble with robos is less about technology and more about business strategy.

“This is not a case of 'if you build it, they will come,’” Mr. Spitzner said. “The cost of acquisition, just to bring in brand new clients, is very high. It’s not different than just generally what an RIA or IBD had to go through to bring in a new client.”

While none of the advice firms that Mr. Spitzner works with have totally pulled the plug on their robo-advice solutions, he said there are certainly some that have.

Others advisers have found themselves trying to defend what turned out to be an over-aggressive business case for automated advice.

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Many firms just bought into the technology without first thinking about target market or value proposition, said Tim Welsh, president of Nexus Strategy.

Firms need to consider if it will be purely digital or include human advice, if the robo needs a different brand and separate website, or how clients will eventually migrate from the robo into a full-service account.

“So many strategy and marketing questions that they don’t have a playbook to work from, thus most of these efforts end up dying on the vine,” Mr. Welsh said.

Of course, some advisory firms have found ways to make it work. At Ritholtz Wealth, its executives are now very happy with its digital advice product, Mr. Brown said.

Still, he thinks the struggle to drive traffic to the digital platform is something that all firms will struggle with.

“Even if the technology were perfect, I’m not sure more than a dozen or so RIAs will be able to make it a big part of their business,” Mr. Brown told InvestmentNews in a Twitter message.

Eric Dostal, vice president of Sontag Advisory, said his firm had some “minor kinks” with Charles Schwab’s robo for advisers, Institutional Intelligent Portfolios, but is overall very happy. The product made the firm’s onboarding process easier and allows it to serve a wider segment of clients.

The question now is whether those clients will be profitable in the long-term.

“Our core offering can be a loss leader in the short term, but we try to limit ourselves to working with clients where we see potential for long-term growth,” Mr. Dostal said. The hope is as their needs grow more complex, they will transition a more traditional, full-service offering with the firm.

The key for advisers is to not try and compete with direct-to-consumer products at Vanguard, Schwab, Betterment or Wealthfront, Mr. Dostal said. The fees they charge are too low for advisers, and many of the clients these services attract wouldn’t be a good fit for advisers in the long run.

Mr. Spitzner says firms can’t look at digital advice as something lesser, but as core to their business, as Sontag Advisory does.

“That’s the model of the future,” he said. “If done right, it’s a better experience. Don’t go crazy trying to be the low-cost provider.”