It's hard to see how robo-advisors' models "can stand on their own," according to Bernie Clark, executive vice president and head of Schwab Advisor Services. "You have to wonder if these things aren't being built for sale."
Nonetheless, Clark thinks it is likely that more RIAs will eventually incorporate elements of robo-advisors' algorithms into their own platforms.
Why? The next generation of clients will demand technological connectivity. And advisors are going to need to appeal to a younger group of clients sooner than they think.
At present, 40 percent of the clients at RIA firms using Schwab as their custodian are retired. Another 30 percent will retire in the next 10 years. Clark also thinks many older clients will embrace robo-advisor technology.
But demographic realities mean RIAs who seek to grow their businesses after 2025 are going to have to start winning new clients from the population of individuals currently between 30 and 45 years old. A decade from now, that cohort will be in their prime asset accumulation years. If their current behavior is indicative of future decision-making, they are likely to be attracted to referral networks of like-minded individuals, often via social media.
Clark believes the RIA model offers a lot of appeal to this sober, socially responsible generation, which is quite distrustful of the financial services industry in general and the Wall Street brokerage model in particular. They have an instinctive aversion to conflicts of interest, commissions and product pushing.
The appeal of financial freedom—a sustainable lifestyle and the ability to take care of their families—resonates with them, Clark said. "The 30-45 age group is quite anxious," he noted. "They have already lived through one of the most challenging times in the last 100 years."
Currently, these folks control $3.5 trillion in assets. However, between now and 2050, another $16 trillion is likely to be transferred to them.