His year, financial advisors have been bombarded weekly with reports of robo-advisors. The advice business is hardly alone.

Industrial manufacturers in Japan, which has dealt with a growing labor shortage for more than a decade, have been rolling out robots in factories at an impressive rate. American manufacturers are quickly catching up.

While the disruptive threat is understandably frightening, a little perspective is in order. First, whatever the industry is, people still have to build the robots.
Another question is: How new is all this? The first robo-advisor, Financial Engines, debuted in 1994. After struggling in the personal advice world, it found fertile ground for growth in the 401(k) market. But since the introduction of the robo concept, the RIA business continued to boom over the next two decades.

It’s a given that technology is becoming increasingly powerful. In late August, I had a chance to see the iPad tools that BlackRock had created for its defined contribution participants and, if individuals know enough to press the right buttons, they can learn a lot.

But the idea that different business models can’t coexist and cross-pollinate is ludicrous. In the last year, I’ve talked to several RIAs targeting the middle market who are building their own robo-advisors.

There’s a much bigger problem than algorithms limiting the ability of advisory firms to grow. It’s called finding the right people, and it’s a problem for all types of firms. Indeed, several robo firms are competing with RIAs in the search for young talent.

On page 72 of this issue of Financial Advisor, Mark Hurley interviews Oxford Financial Group founder Jeffrey Thomasson, who started his firm at
the age of 21 immediately after earning his M.B.A. in 1981. Oxford is targeting high-net-worth individuals and, in Thomasson’s view, those clients are likely going to want advisors who also know what it’s like to have money. How many advisors can actually say that? That’s just one aspect of the shortage problem.

Even in the mass affluent market, technology is only going to take firms so far, and the right people will be necessary. Ric Edelman, who has already built his own robo-advisor, says that a client who uses one isn’t that different from a customer who enters a department store, declines help at first, and then approaches a salesperson when she can’t find a sweater in the right size.

Talk with advisors at firms of all different shapes and sizes and you find that the problem many are confronting isn’t finding new clients; it’s finding
the advisors to service them. On page 62, Ben Mattlin takes a look at managing junior talent, a topic Philip Palaveev will also address in next month’s issue.

Evan Simonoff
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