One of the popular topics of conversation at investment advisor conferences, such as this week’s annual conference in Las Vegas hosted by the Investment Management Consultants Association, centers on robo-advisors: those automated, online investment platforms that have seemingly taken the investment world by storm.
Some, if not many, advisors are worried that robos potentially could eat their lunch. But should they fear for their careers? While the robos—such as well-known players Wealthfront and Betterment—are disruptors regarding portfolio construction, humans still have enough advantages to keep them in the game, and their imminent demise has been greatly exaggerated.
But that doesn’t mean financial advisors should ignore the robos and the value proposition they offer.
This much we know: Robo-advisors have done a good job in constructing diversified, low-cost portfolios based on risk profiles supplied by investors. These portfolios generally consist of exchange-traded funds, and they’ve been popular with young people new to investing. In addition, they have disrupted the financial advisory pricing model to some extent.
But most robo programs have launched during the current bull market that kicked into high gear starting in March 2009, and one of the big unknowns is whether robo-advisor tools will be able to protect investors from themselves when stocks eventually go south. In other words, will investors panic and bail on the market at the wrong time, thus shooting their assets in the foot?
“What will be interesting to see is when those first-time investors, we’ll call them the millennials who are just getting into investing and this is their preferred way and they like technology solutions, what’s going to happen when the market turns over and perhaps goes into a bear market,” said Scott Welch, founder of Unconstrained Thought, a macroeconomic and wealth management consultancy, who spoke on a robo-focused panel session at the IMCA conference.