It's time to stop all the fretting and hand-wringing about whether robo-advisers will put financial advisers out of business. They won't. What they will do — and, in fact, already are doing — is force all advisers to rethink their business models, especially their fees and the services to which those fees are tagged. Robos also will force advisers to up their game in the digital realm by making improvements to the client-facing portions of their websites and adding real-time tools, account aggregation and proactive advice.
Make no mistake: When it comes to disruption, robo-advice is the real deal.
Though it's debatable whether the services offered by many of today's automated advice platforms constitute real advice, it's clear that robo-advisers have set their sights in that direction. And rest assured, they will get there with the help of big data and more sophisticated algorithms.
In classic disruptor style, robo-advisers entered the advice arena by offering a low-end alternative to products and services advisers should have been providing already. Robos aimed their products and services squarely at the masses, a segment all but ignored by traditional wealth managers whose business model of charging fees based on assets under management deemed that market unprofitable.
INDUSTRY WAS RIPE
Indeed, the industry was ripe for the entrance of such startups as
Betterment and
Wealthfront, robos that offer simple, algorithm-based investment advice for a quarter of what traditional wealth managers charge.
Today, about $18.7 billion in assets are housed on robo-advice platforms. That figure is expected to grow to $489 billion over the next four years, as every major retail firm in the country throws its hat into the robo-arena, according to Cerulli Associates Inc.
NO EFFECT
Still, 43% of financial advisers continue to say the emergence of robo-technology will have no effect on their practices, according to a survey of advisers by InvestmentNews Research.
Simply put, that is a preposterous view.
Automated investment advice is already well on its way to becoming a standard expectation for the mass affluent. Soon, the wealthy will recognize robos' low-cost efficiency and begin incorporating them into less-nuanced portions of their investment portfolios.
Financial advisers who fold under these competitive pressures won't have been undone by the emergence of robo-advice, they will have been undone by their own inability to innovate and lack of imagination.
HARNESS THE FORCE
Now is the time for all financial advisers to begin considering how they can harness the disruptive force of robo-advice and use it to their advantage.
Despite their algorithm-based offerings, robos hold the key to deeper relationships with clients. Advisers who incorporate automated investment platforms into their practices will be better able to focus on more holistic aspects of
financial planning, such as providing retirement planning and tax strategies.
One option, of course, is to partner with an existing robo-offering. The advantage of such a strategy is that it enables advisers and their firms to react quickly and would likely be less disruptive for the organization and impose fewer costs than trying to build a legacy system.
But the chief advantage that comes with building a system is that it gives firms and advisers fully customizable platforms. That, in turn, would allow them to differentiate themselves from the majority who go the white-label route.
RANGE OF SERVICES
No matter what, no financial adviser can afford to ignore the impact of robo-advice. Firms that embrace this disruption and offer a range of services, from automated investment advice to white-glove financial planning, will thrive and prosper in the digital age.
