Robo Advisors: Threat or Asset?

Posted by Rachel Beckwith on Jul 21, 2015 1:00:00 PM


In the past month it seemed like our inboxes and Twitter feeds exploded with articles on “robo advisors.” Not necessarily a new technology, these automated platforms are setting off some threat alarms in the financial services industry.

It seems robo-advising can’t be avoided, which shouldn’t come as a surprise in our world of evolving technology and “gotta have the next big thing,” “how can I get the most bang for my buck” mentalities.

I dove into as many of these articles as I could in order to compile a list of the ones I think offer the best insight into the rise of robos and how traditional advisors can meet the challenges they pose head on.

A large percentage of these pieces (including this one and this one) cite a survey of 4000 conducted by A.T. Kearney Consulting, which defines robo advisors as “ providers that offer automated, low-cost, investment advisory services through web- based and/or mobile platforms.” The Kearney report offered compelling projections, including the idea that in the next 5 years robo advisory platforms will become mainstream, and will manage $2T of American investments, that’s 5.6% up from .5% today.

A couple other articles refer to additional surveys of both investors and advisors. A June 3rd article, “Pershing: Advisors not, sold on teaming with Robos” by Diana Britton and posted on wealth management offered some insight from a Pershing study of 350 US advisors and their thoughts on whether robos should be seen as a threat, an asset, or neither. On June 23rd Investment News published “Investors Prefer Live Advisors Who Incorporate Tech” by Liz Skinner* which cited a Wells Fargo/Gallup poll of 1005 investors and found that while personalized service is valued, robo technology was seen as an asset they were interested in seeing combined with more traditional advisory services.

The following I found to be the most enlightening and helpful in laying out the impact robos are likely to have on this industry:

“Robo Advisors: The next big thing in investing” by Matt Egan for on June 18

Egan posits that robos are on the rise in the investing world, largely due to changing attitudes about investing with millennial investors which include their wariness towards the stock market based on their experiences watching the rise and burst of the dot com bubble, as well as the recession of 2008.

“Robo Advisors to Run $2T by 2020 if the Model is Right” by Bloomberg News for FA Magazine on June 19

This article heavily cites the A.T. Kearney Report in discussing robo growth. Most interestingly, though, it quotes Laura Varas of research firm Hearts & Wallets as saying that robo advisors are less of a threat to traditional advisors who have ignored young and middle-aged investors. I’d like to interject here with further deduction: the fact that robos are more appealing to younger investors might simply split the market by age demographic, for now, but we can’t forget that younger investors are going to be the ones who refill advisors' client bases as current clients begin to retire, or even die.

“How to Meet Robo Advisors Head On” by Frank Muller* for Investment News on June 23

Here Muller offers some ideas on how to, as he puts it, “beat the robots at their own game.” He points out that robos are mostly mutal funds and ETFs; they’re offering low cost, high liquidity, and easily trackable investment options. Therefore, Muller’s spot on advice is for traditional advisors to improve communication, provide first class service, offer distinctive products, and make it clear that the value of personalized service and advice outweighs the price tag.

“In the ‘Game of Robos’ is winter coming for smaller firms?” by Ryan W. Neal for Wealth Management on June 22

This article reminds us that robo advisors are not immune to completion, and one of the best ways to keep up in the changing marketplace is to incorporate the technology to augment their investment strategies. But, we are reminded that this sort of change might make it difficult for smaller advisory businesses to keep up.

“Breaking Down the Best Robos for your Practice” by Alessandra Malito* for Investment News on June 25

One of the key theories to “Keeping Up with the Robos” is that advisors need to incorporate the technology into their traditional practices. This list includes a breakdown of popular robo platforms, including tax and investment features as well as software integrations.

In my reading I've gleaned the following: robo advisory platforms, might not be an immediate threat to traditional, full-service advisors, but their growth is steady and they pose a significant threat in the long-term. The good news is that advisors can mitigate the competition by focusing on three main areas of improvement: 1) embracing the technology and incorporating it into investment offerings; 2) acknowledging, and finding new ways to communicate with, the next generation of advisors even if their worth is lower now; and 3) making clear the value of adaptability with the market, human advice, and personalized service.

*unfortunately, at the time of posting these articles require registration to Investment News to view in its entirety, but it’s free and these articles are worth reading.

What have you been reading?

Are you worried about robo growth in the industry?


Topics: Business Growth, Industry News, Robo Advisors, Sustainability

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