Financial advisers are not embracing automated portfolio management.
Just a few years ago, when direct-to-consumer startups Betterment and Wealthfront were growing assets at a meteoric rate, a new model rose to meet it — the robo for advisers. Some were new startups, others were direct-to-consumer companies that pivoted business models, but the common theme was to give traditional advisers a tool to remain competitive with the startups and connect with millennial investors.
Some firms spent sizeable budgets on robo-solutions, but advisers simply aren't using them. According to the 2019 InvestmentNews Adviser Technology Study, only about 8% of firms currently use a robo, and only 5% said they were looking to add digital advice in 2019.
A similar study from Technology Tools for Today found that 25% of advisers use a robo, but, as the survey itself acknowledged, respondents to T3 studies tend to be a more tech-savvy demographic who actively embrace technology. The T3 study also found that automated portfolio features from traditional asset management platforms like Envestnet and SEI had greater market penetration than standalone robos like Schwab Intelligent Portfolios, BlackRock's FutureAdvisor or Betterment for Advisors.
The data is being felt in the market.
Last week, SigFig, a former direct-to-consumer robo that pivoted to build digital advice for large financial institutions, reportedly laid off about 10% of its workforce, according to Business Insider. SigFig has not responded to multiple requests for comment, but a person familiar with the situation, who requested that they not be named, confirmed the layoffs to InvestmentNews.
The report follows the departures of Randy Bullard, who was SigFig's wealth management general manager; and Martin Attiq, its former head of sales.
Some said such layoffs could suggest a strategy pivot for the company. In March, the company announced a new product to help retail banks sell products beyond investment advice, such as bank accounts, loans and mortgages. SigFig is hardly alone in this.
The source familiar with SigFig said the cuts were made across the board and not to any particular team, and were not reflective of a pivot or change in company strategy. According to the source, the firm is in a good position to grow long-term, but asset flows into digital wealth just haven't materialized the way many early prognisticators predicted.
While many fintech firms are struggling to meet the expectations set by the eye-popping valuations of their fundraising rounds, SigFig was one of the most successful fintechs to make the pivot from retail consumers to institutional firms. It landed some of the biggest fish that a startup could hope for, such as Wells Fargo, UBS and Citizens Bank. If they are struggling to grow the technology, what hope do others have?
"Business-to-business digital advice providers have as a group struggled with growth as their institutional clients have struggled to drive adoption for a variety of reasons," said Gavin Spitzner, president of adviser consulting firm Wealth Consulting Partners, in an email. "Everyone is looking for success stories in this space, and I'm confident they will come, but it's hard work and about much more than just the technology and digital client interface."
So why aren't digital advice programs being embraced by the traditional industry?
In September, Mr. Sievers suggested that financial institutions can make more on deposits by placing them in other accounts than automated investing accounts which earn just 25 basis points.
Mr. Spitzner added that banks haven't felt much of a need to commit to building a complete offering like Vanguard Personal Advisor Services or Schwab Intelligent Portfolios Premium.
"Banks in particular may need to feel more pain before they commit more aggressively to building out hybrid channels with call center-based advisors and digital advice capabilities," Mr. Spitzner said.
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Meanwhile, independent financial advisers just don't have the access to customers or the resources to spend on marketing digital solutions. Advisers also struggle with the technology, and some have pulled the plug on their robo plans entirely.
As cliché as the phrase "the future of financial advice is a combination human and digital" has become, having been so overused by industry analysts over the years, it's still true. Advisers will continue to adopt technology to digitize account openings, automate workflows and improve marketing. Some will even find success with robo-advice. But their numbers are small, at least for now, and the vendors serving them are feeling a squeeze.