Kitces doesn’t think it makes sense for advisors to join forces with robo-advisors to compete against the established competitors in the space. “Who is going to roll out your own business model for do-it-yourselfers?” he asked.
Even worse, he joked that nobody would want to go after the millennial do-it-yourselfers. “Don’t try to go head-to-head with a robo and compete with what they do,” Kitces warned. He explained that they are better at online marketing, so it is not worth going after the same market.
In an interesting analogy, he brought up the nursing home business. He suggested an idea where nursing homes would install nice flat-screen TVs to draw in the grandkids of the current tenants to be future customers. Traditional advisors do not need to do something so zany to get future business.
Why Robo-Advisors Are Going To Be A Success
To that point, Sokolin rebutted, “I don’t think a nursing home is like financial advice.”
He asked, “Why is a robo-advisor practice valued at 50 times revenue?” He continued, saying, “The answer is future growth.”
He pointed out that most advisors are doing a terrible job of capturing the next generation as clients before they gain assets. Many are not even trying.
Ellinger pointed out that this underserved group represents a huge opportunity and that robo-advisors are focusing on 100 million prospects with $9 trillion in assets. “It is a significant opportunity,” he said.
Adding Robo-Advice To A Traditional Business
Integration is key. “It isn’t a question of ‘should you?’” said Sokolin. “Schwab is out there. Vanguard is out there.”