Threat Vs. Opportunity

The Opportunity
We suspect that few advisors feel threatened by consumer-facing robo-advisors because they doubt the validity of the business model. That’s debatable, though we don’t plan to argue that case here. We will point out that Schwab, for example, needs to attract significant assets to its platform, Intelligent Portfolios, to justify the cost of building it.

What seems clear to us is that the technology powering the robo-advisor platforms is a disruptive force that creates opportunities. For example, to the degree that it encourages traditional vendors to the advisor community such as eMoney to significantly upgrade their platforms, there is an opportunity for advisors to lower costs, improve efficiency and provide a superior client experience. The same can be said for the platforms being offered by custodians and the newer business-to-business robo-technology vendors. We see this as a significant win for the advisor community at large.

The greater opportunity, however, may be that new technology will open up new markets to advisors. Many firms have instituted high minimum account sizes to address their high overhead, effectively excluding most of the U.S. population from their services. But what if there was a way to offer basic financial advisory services at low cost and on a great scale? That’s exactly what robo-technology platforms will allow you to do. Enterprising advisory firms will identify the new growth opportunities that these technologies offer.

For example, advisors can now provide the services that robo-advisors offer with a human touch at a competitive price. The model will be lower-cost and lower-touch than your traditional services, but if clients call, they get a real advisor on the phone. Furthermore, as these clients build wealth through the services you provide, their financial situations will become more complex, and you will be able to graduate them to your full-service model. Thus, your low-cost offering will create a pipeline for the future growth of your wealth management business.

Another scenario is available to those firms with in-house investment expertise. With technologies offered by firms such as Motif Investing or Folio Institutional, to cite just two examples, firms can create their own SMA or UMA platforms at a low cost for their clients. They can also create portfolios based on their own stock selection criteria and make them available to other advisors for a fee.
These are just a few examples of the opportunities that technology advances make available to enterprising advisory firms. There are others.

Challenges Remain
While we are generally optimistic about the new opportunities presented by these new emerging technologies, challenges remain. Perhaps the largest one is integrating these new technologies into the advisor ecosystem. For example, it seems obvious to us that advisors will require integration between their CRM and these platforms to more effectively track prospects and clients. If, as we believe, financial planning software will play an increasingly critical role in the advisory practice of the future, integration with financial planning software will be a necessity as well. Depending on the technology platform you use and your business model, integration with billing software and other tools will also be highly desirable. To date, few if any firms have managed to integrate robo-advisor technologies with custodial technology and with traditional third-party vendors. This too will change in 2015. As Tom Nally pointed out, his firm is committed to integrating multiple emerging technology partners into the VEO ecosystem in the coming months.

Closing Thoughts
The new technologies coming to market in 2015 have the potential to shake up the status quo, most likely for the better. It will be up to advisors to familiarize themselves with the capabilities of the various products and to implement them in innovative ways. The introduction of important new technologies into an industry always creates both winners and losers, but on the whole, we expect the advisor community to benefit from the new robo-technologies that will become available to them in 2015.