Despite a flurry of initial interest, financial advisers have been slow to jump on the robo-advice bandwagon.
“There has been interest initially, but I can tell you at this point the take-up is pretty light,” said TD Ameritrade Holding Corp.'s chief executive, Fred Tomczyk, on a conference call with analysts on Tuesday.
TD Ameritrade's custody unit has been offering advisers access to several third-party robo advisers for about a year through its portfolio management platform, and while the idea of partnering digital and human advisers is still somewhat new, many advisers are trying to decide whether to offer a digital advice platform and how to incorporate and price the service.
“It takes a while to learn how to integrate it into a practice,” said Jon Stein, founder of digital advice platform Betterment. “We often forget that the original TD wasn't built in a day. Schwab wasn't built in a day. Vanguard wasn't. These were businesses that took a while to find their groove.”
Betterment, which has partnered with Fidelity Investment's custody unit and
began offering its own platform for advisers last October, has had 100 advisers partner with its service, according to Mr. Stein.
COMPETITOR OR FRIEND?
While initially seen as a competitor to advisers, many see the automated investment advice as a potential benefit for advisers in terms of helping them scale their practice and serve younger or mass affluent clients at a lower price.
Charles Schwab & Co. is gearing up to launch its institutional Intelligent Portfolios, a white-label digital platform for advisers, this quarter. The firm said initial interest was high, with 2,900 advisers registered for a webcast briefing on the rollout. A definitive launch date has not been announced for the product, which will cost advisers a fee if they hold under $100 million with Schwab.
But despite the buzz, actually getting advisers onboard seems difficult, according to Alois Pirker, a research director with Aite Group's wealth management unit.
“What robos need to learn is how you insert yourself into the advice space,” he said. “That's the tricky thing: Do advisers really want to use it and if they want to use that, what are the requirements?”
Some advisers are reluctant to turn over the investment management portion of their business to a third party, according to David Lyon, chief executive of Main Street Financial who founded the practice management software company, Oranj, which helps advisers with account opening and management.
“For the most part, advisers tend to be really passionate about doing the investment management themselves,” he said. “It's really injecting a new service model into their core business.”
Incorporating a robo adviser also presents issues with pricing and client segmentation, in addition to figuring out whether having a robo adviser even makes sense for advisers who may have built a large business on wealthy investors, according to Mr. Pirker.
“Advisers are [considering] what they think about it and how they are going to use it for smaller clients, how they would like to position something like that or if they're at all interested in it,” he said. “How do advisers in the end adopt it? Or do they ignore it and say my clients are well above that, and I don't need that.”
PRICING A CHALLENGE
Pricing is a challenge as well because it may be more economical for some clients to go straight to a firm like Betterment and pay the 25 basis point fee rather than paying a mark-up for working with an adviser as well, Mr. Pirker explained. Advisers could also be put in the position of having to explain to some clients why they pay the full 1% fee while smaller clients pay only 50 basis points to have their money managed.
Mr. Pirker said that he expected adoption to increase as robo advisers helped work through the issues. Many digital advice providers are already rolling out more flexible models that give advisers more choice on investment management or pricing, he said.
“There's no doubt that many will not get it, but it is a unique platform that if leveraged well, you can [attract] the next generation of clients and all of that makes sense,” he said.
To be sure, many advisers have gotten behind the trend. High profile registered investment adviser Ritholtz Wealth Management, for example,
launched its own robo, Liftoff, through Upside Financial, a digital platform that works with advisers and custodies with TD Ameritrade.
Advisers will be more motivated to use the robo advice products as they begin to focus more on the transfer of wealth from baby boomers and attracting the next generation, according to Jon Patullo, managing director of technology product management at TD Ameritrade.
“Advisers have historically been slower to adopt many technologies,” Mr. Patullo said. “It's light now, but as we see more and more of these millennial investors coming to market, you'll start to see a shift in that trend.”
