Robo Advisors:  A Cause for Concern?

Many advisors do not see the new Robo Advisor trend as being a threat to their business.  In this post, we will attempt to provide some points as to why advisors should not be so quick to dismiss Robo advisors as a threat, and to also see them as an opportunity.  Here are 8 points to think about when assessing the challenges and opportunities Robo Advisors could bring to your practice:

  • Pricing: Robos are doing business at much cheaper fees than their human counterparts. Robos are companies like Schwab are doing business for as low as 28 bps.  As we all know, the 28 bps does not incorporate all the ancillary fees that will be charged, but at these levels, Robos are capable of managing assets at a much lower fee than most human advisors can charge.  With all the commercials and online ads out there in this day and age, we should by wary that these low fee Robos will intrigue some of our clients
  • Early Success: Robos are relatively new to the industry.  In that short amount of time they have been around, they have enjoyed tremendous success.  Vanguard alone is managing $46 billion in their Robo program.  As more Robos are introduced and advertised, clients will continue to test the waters.
  • Adaptability: Many advisors have express their hesitancy to lower their fees.  This may not be the best course of action with the expansion of Robos.  This is especially true for younger clients and smaller accounts.  As you build your service models in anticipation of the DOL, you should take a long look at building a low fee model that incorporates a Robo Advisor for these accounts.
  • Compliment: Instead of looking at Robos as a threat to existing and new business, advisors should be focusing on using them as a complimentary tool to their practice.  Many new Robo programs will be rolled out in the near future.  It is our hope that our advisors take advantage of this new technology.  This will save you time, and more importantly, allow you to offer an option that did not previously exist to clients that may be ideal for a Robo program.
  • Growing Industry: every day, more Robo Advisor options are presented to the public.  Some of these options include Schwab, Fidelity, Vanguard, and Betterment to name a few.  Banks are getting in on the action as well.  Wells Fargo and Citibank are currently working on rolling out their Robo Advisors.  The more Robos that are introduced, the more attention and assets they will pull from traditional advisors.
  • Demographics: many advisors think that Robos are only attracting younger investors with smaller accounts.  This is not the case.  Robos are being utilized by all demographics.  Young and old, male and female, high net worth clients are all using Robos.  Don’t discount the possibilities that your older, higher net worth clients will entertain the possibility of using a Robo.
  • Additional Services: the common belief is that Robos are currently only involved in picking investments and asset allocation.  Many Robos are starting to roll out programs that will help clients with budgeting and spending analysis.  This is a step in the right direction for robos, with them becoming more like traditional financial advisors, who help clients with all aspects of their financial life.
  • Continuous improvement: As we all know, technology tends to increase its capacity over time.  We don’t see Robos being any different.  In the near future, we have to be prepared for our industry to be flooded with new Robo offerings, with increased capabilities that will rival their human counterparts.
  • With all these points being laid out, we still do not feel that the Robo threat is something that should keep you up at night.  Is it something we should be paying attention to?  Absolutely.  Would there be a benefit to adding a Robo component to your practice?  We certainly believe so.  At the end of the day, clients favor human interaction in professional relationships.  This is especially true when it comes to something as delicate as who is handling their hard-earned assets.  In our opinion, clients value reliability, efficiency, and empathy, as well as a subjective perspective that cannot be provided by a Robo Advisor.  It is our job to help you continue to provide these values to each client so that a Robo Advisor does not become a viable option for anyone in your book of business.

 

 

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