Should your firm offer a robo-advice platform? Here's what your peers are doing

The latest research from InvestmentNews finds that offering a robo-advice platform may not be right for all advisory firms, but all firms can learn how to harness technology to offer innovative service. The following is an excerpt from the "2017 InvestmentNews Adviser Technology Study," detailing analysis around how independent advisory firms are approaching the quickly evolving robo-advice technologies at their businesses. To download the executive summary and purchase the full report, click here.

For some firms, there is good cause to adopt a robo-advice offering. Advisers who offer or who plan to offer a robo-advice service see it as a way to expand their range of services and go downstream with a low-fee offering that allows them to more profitably serve smaller accounts, younger investors, accommodation accounts and other potential clients outside their typical base. A few firms see robo-advice as a way to attract new business from their current target clients, but very few see it as a way to improve the overall investment experience. Tellingly, very few firms cite the technology that robo-advice brings to the firm as a motivator for offering the service, obfuscating what is likely to be one of the lasting effects of automated investment advice on the wealth management industry: automation. Everything in daily life is now available via smartphones at the swipe of a finger. Personalized services are offered on the user's time frame, schedule and device. Robos have optimized their service to conform to today's technology-enabled reality. Advisers who seek to keep their firms competitive should be thinking about how to do the same. How can advisers incorporate the behind-the-scenes automation that robo-advisers have perfected and made into a core offering? To start, they should seek out technology that offers an elegant, paperless and speedy on-boarding experience, and begin integrating web-enabled tools and dashboards that clients value. Two years from now when we field our study again, we suspect that bringing new technology to the firm will show up more prominently as a motivation when firms are weighing whether to offer a robo-advice service.

While the number of traditional advisory firms offering robo-advice to clients has more than doubled since 2015, the percentage of firms providing the service is still very small — 7% in 2017 versus 3% in 2015. Looking ahead, however, some significant changes are on the horizon. Nineteen percent of firms that do not offer a robo said they plan to roll out a digital advice platform in the next six to 12 months — nearly double the number of firms that indicated the same intention in 2015. Overall, the percentage of advisers who offer or who plan to offer a robo-service has doubled in two years, from 13% to 26%. While they currently represent a small portion of the market, robo-friendly advisers are gaining share and their numbers are expected to grow as more third-parties develop easier ways for traditional advisers to adopt and offer digital advice platforms.

It is the largest firms — those with revenue of $5 million and up — which are using the service most (33%), perhaps because they have the organizational depth and capacity to absorb and implement it. Mid-size firms, meanwhile, are the least likely (23%) users. While far enough along in their evolution to have a defined client and service offering, they typically do not yet have the capacity to expand into the traditional robo-advice market of mass affluent investors. Small firms (sub-$1 million in annual revenue), meanwhile, are slightly more likely (27%) to offer a robo-service, and they are most attracted to the prospect of attracting new client segments. Among small firms founded in the last decade, that number increases to 31%; the niche client they seek lines up with the typical robo-advice target customer. To download the executive summary and purchase the full report, click here.