It was billed as “The Future of Financial Advice: Man vs. Machine,” a debate held Tuesday at the Inside ETFs conference in Hollywood, Fla., between two sides of the financial advisory divide—traditional financial advisors and robo-advisors, a catch-all name for the automated investment services that have proliferated in recent years and which some people believe are a threat to the traditional human-based advisor model.

The “man” in this case was noted financial advisor Ric Edelman, who squared off against the “machine” embodied by Adam Nash, CEO of Wealthfront, which claims to be the largest robo-advisor with $1.8 billion in assets.

Given the packed audience in the large assembly hall, it had the feel of the advisory world’s version of an Ali vs. Frazier boxing match. And while Nash floated like a butterfly with his informative descriptions of Wealthfront’s capabilities and goals, it was Edelman who stung like a bee with his blunt assessments of the potentially devastating impact robo-advisors could have on the existing advisor model, and how advisors must keep up with technology or die.

But first, some pre-debate introductions. Wealthfront is a three-year-old, Palo Alto, Calif.-based company whose growth in assets and mindshare among investors gives it a buzz typically associated with other young technology turks from Silicon Valley that are seen as being a disruptive force in their particular industry.

Nash, who said he was a Wealthfront client before he joined the company two years ago, described Wealthfront as a simple and transparent service providing personalized portfolio management layered with certain investment strategies previously available only to ultra-wealthy folks, such as tax-loss harvesting.

“And we do it at an incredibly low price—it’s free under $10,000, and we charge just one-quarter of 1 percent for amounts above that,” he said.

Nash noted the generational tilt in Wealthfront’s client base––65 percent of its customers are under the age of 35, and 90 percent are under age 50. Client portfolios range from between $5,000 and $10 million in assets, and the average portfolio is worth $90,000.

“That’s far below the minimums at most RIA practices,” Nash said. “We like to think we’re bringing sophisticated financial advice to a large new generation of investors, and we’re exceptionally bullish on the idea that this millennial generation will be a large economic force in this country and they’ll have a different idea of the types of services they’ll want from financial advisors.”

Ric Edelman, on the other hand, probably doesn’t need much introduction among advisors. That said, he’s chairman and CEO of Edelman Financial Services LLC, a traditional investment management firm with 39 offices across the country and about 115 advisors serving 26,000 clients. The firm’s client account minimum is $5,000, and the average account size is roughly $500,000.

“Our target audience is the mass affluent, though we do have a large number of high-net-worth clients,” he said.

Are Robo-Advisors A Threat?
That was the basic question framing the debate, and Nash said he doesn’t think Wealthfront or its rivals are a threat. But, he added, like any technology revolution the robo trend raises lots of questions and upends certain assumptions. He noted Wealthfront doesn’t do a lot of marketing, and much of its growth has come from word-of-mouth advertising.

“Wealthfront now has more than 20,000 clients, and the top reason why people use us is because they were referred to us either online or offline by an existing Wealthfront client,” Nash said. “The reason Wealthfront clients are delighted with the service is it’s personalized. They trust it’s doing the math correctly and believe it’s watching their account 24/7.”

And, he added, the online nature of Wealthfront’s infrastructure and the scalability and innovations of technology will enable Wealthfront to expand its product offering and easily accommodate reams of new clients.

Nash also boasted about Wealthfront’s “world-class financial talent” that includes chief investment officer Burton Malkiel, the Princeton University economist and author of "A Random Walk Down Wall Street," along with a roster of CFAs and PhDs who provide the firm’s investment research.

“The real difference in our model is we don’t believe we should use those people to manage individual accounts, but instead we let software do the execution of the day-to-day management and trading,” Nash said.

The upshot, he noted, is Wealthfront can make available to a much larger audience the types of investment insights and strategies that were previously available mostly to high-net-worth investors.

When it was his time to reply, Edelman cut to the proverbial chase. “I think Adam is being disingenuous, and rather polite because of the audience in front of him,” he said, referring to the large numbers of advisors in attendance.

“There is no way that you are not a threat to the people in this room,” he added as he turned his gaze toward Nash.

Speaking in a matter-of-fact tone while wearing mismatched socks (green on his right foot; red-and-white stripes on his left), Edelman looked out over the audience and said, “Adam is going to put most of you out of business. It’s as simple as that.”

That elicited laughter—perhaps some of it was nervous laughter—from the attendees.

Edelman continued. “And if he doesn’t put you out of business, someone like him will. And I’ll take this further—it probably won’t be Adam; it’ll be Adam’s successor, because I don’t necessarily believe that Adam will survive.”

He quickly clarified that his comments weren’t directed at Nash’s own personal survival, but rather were a commentary on his belief that other, larger companies will enter the automated investment service space and eat Wealthfront’s lunch. “Adam will be fine; Wealthfront is toast.”

Guffaws filled the room, adding to the entertaining nature of the debate. Indeed, Edelman’s tone wasn’t confrontational. It was more a basic assessment of what he believes the current state of technology and consumer expectations mean for financial advisors.

“We [Edelman’s company] compete with advisors all of the time, and the reason we’re able to win so often is because we find most advisors have as their value proposition price and performance. If that’s your value proposition, you will get crushed by this guy,” Edelman said, alluding to Nash and Wealthfront, “because you cannot do it cheaper and you cannot make more money for your clients.

“So it’s vital to us to offer something else as a value proposition,” he continued. “At least at our firm, that something else is a personal relationship with broad-based financial planning and a goals-based environment covering every aspect of a client’s personal finances. Which is something Wealthfront and the other online financial advisors simply cannot do—at least not yet.”

Edelman proposed that Wealthfront and it rivals have yet to be tested in a bear market. “Until they do, we really don’t know how sticky those assets will be and how loyal those customers truly are.”

“It really doesn’t matter to us [financial advisors as a whole] because as Adam pointed out, the person likely to become his client is a person you don’t really want anyway—a young person with only 90 grand to invest,” Edelman said. “Give it 10 or 15 years when that person is 50-plus and the 90 grand has become several hundred grand, that person will realize they need far more help than they can obtain from an online advisor—at least in their current iteration. And that’s when they will come searching for us.

"So yes, they’re a huge threat,” he continued. “And that’s why we’re spending a huge amount of energy and technological innovation in our company because if we don’t innovate and don’t stay state-of-the-art technologywise, we too will get crushed by the technology revolution.”

In his reply, Nash said he understands why advisors feel threatened by the “young, fast new model.”

“The technology wave doesn’t move backwards,” he said. “I think you’ll be shocked at the services we’ll be able to roll out as we achieve our goal of building a client-centric firm that uses software as its core advantage.”

Nash said when he first joined Wealthfront, it had $100,000 in assets. Then it hit $1 billion last year when the company was two-and-a-half years old, and he expects exponential growth going forward.

“Our advantage as a software company is we don’t have to roll out retail branches, which means we can develop much faster,” Nash explained.

Nash said Wealthfront has studied other successful financial services firms to see how they handled both growth and changes in the markets. “For growth, we looked at Charles Schwab, whose early clients were in their 20s and 30s. Schwab started as a discount brokerage, and now how many services do they offer their clients? And now its average client is 54, and it [Schwab] grew up with that generation.

“Our plan isn’t to be just an automated investment service, but we do want to be the best automated investment service out there today,” he continued. “We don’t provide all of the services that traditional planners offer, but we are basically opening up the market for people to make a different type of choice.”

And Nash said Wealthfront plans to serve its younger-generation clientele for decades to come.

Big Boys Join The Fray
Some observers question the staying power of first-generation robo-advisors such as Wealthfront because they’ve spent tons of money building their platforms and still aren’t profitable. Nash addressed that issue by noting people wondered how Facebook would ever monetize its business model.

“How are you ever going to make money?” Edelman asked.

“We make money every day,” Nash replied as he leaned over and patted Edelman’s right arm in a friendly manner.

“And you lose much more,” Edelman retorted as he leaned over to return the arm pat gesture.

“I’ll make the numbers simple,” Nash said. “Wealthfront has grown 18 times in the two years I’ve been there, and we’ve grown headcount about three times. Continue those curves outward and we’ll have no problem making money. And we have some of the best venture capitalists in the world who agree with us. And the ones who’ve invested in us have been more right than wrong.”

In response, Edelman referred back to his earlier comments about the survivability of Wealthfront. “The fact is the technology is here to stay. Whether Wealthfront survives or not—they’re the pioneers, and we all know pioneers get arrows in their back and it’s the settlers who follow them who succeed. All it takes is Vanguard and Schwab and Fidelity to say, ‘I think we’re going to get into this business.’ Oh, wait a minute, all three of them already have.”

Specifically, Edelman cited the success of Vanguard’s online service, Fidelity’s decision to partner with Wealthfront rival Betterment to offer its online capabilities to Fidelity advisors looking for a robo-type platform, and Schwab’s announcement to launch its own online service.

“It doesn’t matter who the players are; we can’t stop it," Edelman said. "We’re either going to acknowledge it and participate by providing our own clients with the same types of services, or we’re going to get crushed.”

In an extremely small sample size reaction, one advisor at the debate said he doesn’t feel threatened by the rise of robo-advisors. “I do agree that Wealthfront will grab a portion of the business, but there will be people who still demand human contact, especially when you’re talking about behavioral finance and panics and more complex financial planning issues,” said Timothy Harrington, a partner at Marin Financial Advisors in Larkspur, Calif.

“I think the advisor who survives and thrives will be someone who partners with some sort of white-label or Betterment-type robo-advisor, and uses that to help bring up a farm team of clients who are in their 30s and who’ll eventually have larger amounts of wealth and more complex situations that require the level of individualized attention that I don’t think robo-advisors can provide in their current iteration,” he said.