Most advisors are torn over how they should react to the advent of robo-advisors. If they shouldn't fear robo firms as competitors, should traditional advisors join forces with this technology to make their businesses more successful?

The FPA BE Boston conference tapped right into that concern and curiosity and held an intense debate between Michael Kitces, the director of research at the Pinnacle Advisory Group, and Lex Sokolin, the chief operating officer at Vanare. It was moderated by Rich Ellinger, CEO of Wealthminder (who did have an obvious bias toward the robo side of things).

The session, called "RoboAdvisors: What You Need To Know -- Point/Counterpoint," was designed to provide two radically differing perspectives so the attendees could make their own decisions. Indicative of the topic's extreme popularity, attendees jammed into the room and spilled outside the doorways to listen.

Why Advisors Should Not Be Afraid

Kitces made it clear that he thinks a robo-advisor can basically be defined as rebalancing and on-boarding software. “It is good at solving that problem,” he agreed.

With that said, he believes the robo-advisors are finding it difficult to deliver more sophisticated services and bring on new clients. Kitces pointed out that even with $100 million in venture capital budgets, robo-advisors are raising minuscule amounts of assets, relative to the overall industry.

“Did E*TRADE put us all out of business?” he asked. Though he didn't say it, E*TRADE at one point actually went out to hire advisors to help investors manage their stock option and 401(k) plans.

“E*TRADE took the cost out of trading,” Kitces explained. It also targeted a different group of investors than advisors serve. Like online brokers and electronic banks, robo-advisors are not really competing directly with advisors. Kitces believes Schwab and Vanguard are the ones that feel the competition from robos, and that is why they jumped into the space.

He acknowledged that Vanguard is the biggest concern for advisors, since it has the brand and the scale and can do things at a third of the cost. “That is the real industry threat,” he said. That said, advisors are also major Vanguard clients.

Why Advisors Should Not Join Forces

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