“This is the biggest thing that’s happening in this world,” says Bill Harris, the CEO of Personal Capital, about the onslaught of online investment management sites into the advisory space. “This is just the evolution of the business. Everybody will be doing this five to 10 years from now.”

Harris is speaking about online advisory platforms—the constellation of new names like Wealthfront, Betterment and FutureAdvisor—that, in theory, could replace investment advisors. Could this be a Terminator-like rise of the machines?

That’s not their line, at least not right now.

Harris is a charismatic and fluent spokesman for the tech space, and speaks from experience, having led PayPal and Intuit in the past, and from conviction of purpose, having seen technology upset past modes of doing business. He launched Personal Capital in September 2011 thinking planning was broken. People were only doing it as a gimmick while they charged for other things, he claims.

In the same way sites like Mint.com have tried to take over personal household accounting, this wave of new online advisory firms in the past four years has taken the logic a step farther by automatically investing client money in diversified investment strategies, using sliders for goals and risk tolerance, then investing in ETFs according to what the algorithms and calculators decide is the best risk/reward profile for the customer.

Of course, that thought could likely make a financial planner bristle for more reasons than one. This is a relationship business, one in which people’s goals and values must be determined before they stock up on ETFs. The idea that a computer can do it seems naïve on the right hand, sinister on the left.

Yet so far this hasn’t turned into a cage match to see who can make financial plans better and faster—John Henry or the machine.

It’s useful to keep some numbers in perspective. Many people simply don’t have the threshold account minimums to work with wealth advisors, who don’t get the same efficiency from smaller accounts. The online sites have naturally stepped in to fill the breach.

“The online platforms … appear to be a great resource for someone in the earlier phases of their career,” says Phil Ridolphi, a CFP licensee with Balasa Dinverno Foltz in Itasca, Ill. He praises their low-cost, globally diversified funds and ease of use, though he’s skeptical about how much these sites can personalize a portfolio or make complex cash-flow strategies.

Betterment, a firm launched in the Chelsea neighborhood of Manhattan by Harvard and Columbia Business School grad Jon Stein, started, Stein says, because he had made bad bets himself on individual stocks. He and his friends saw a big gap they could fill for young investors who had made similar mistakes in the past.

Stein says that at Harvard he developed an interest in behavioral economics, but he didn’t see anyone applying it in the workforce, except to exploit investment emotions. As a consultant for banks, he saw some companies making massive fees off overdrafts, taking advantage of bad behavior rather than fostering responsibility. He’d also been somewhat luckless when actively managing his own stocks. One of his first, in 2002, was Enron.

“I bought it at 50% of its original value and I thought I was getting an amazing deal,” he says. “It was a little bit like catching a falling knife.”

As he was getting his CFA later, he started to develop the idea for Betterment. He believed there had been no great innovations in the online investing space since E*Trade and other brokers came out in the ’90s and brought down the cost of buying stocks. However, “active trading is such a bad idea that you do far worse in that than you would do in a mutual fund. The reality is it didn’t actually help people do that much better with their money. They provided an alternative to gambling more than a real solution for wealth building.”

His firm came into the space early, launching in May 2010. Betterment has no account minimums, though Stein says that the site is better geared toward those with $10,000 to $10 million.

“We transfer that money to an account in your name. We immediately go to the market and buy securities for you in your name so you own the actual ETFs, the 12 different ETFs that are in your portfolio. You choose the right level of risk with a slider, and there are 101 different stops on it.” The firm bases the portfolios on the risk level and the cash needs (a house in 10 years? In 20 years?) and then puts investors into low-cost ETFs offered by the likes of Vanguard and iShares.

Wealthfront, a competitor, does have a minimum, but it’s only $5,000. CEO Adam Nash, a veteran product and engineering guru with names like LinkedIn and eBay inked on his resume, says his firm is frankly targeting Gen Y investors—a group he says doesn’t like to talk to people on the phone and prefers doing business in the same way they are living their lives—online. With people like Burton Malkiel, author of A Random Walk Down Wall Street, on its investment committee, Wealthfront, says Nash, has been able to offer an affordable investment strategy through its software.

“We’ve discovered over the last few years that this solution is immensely popular with young people,” he says. “Over 50% of our clients are under 35 and 85% are under 50. This is a generation that has grown up with computers. They know what software is good for and what it’s not good for.”

It’s important to note that younger investors from Gens X and Y, as studies have shown, prefer to stalk information online rather than meet people face to face. That makes this demographic, and all the wealth it is set to earn and inherit, a natural target for this kind of online service.

The Human Factor
Harris had a different idea in mind when he started Personal Capital, whose goal is to connect clients to actual human beings. The firm will only manage assets for those with $100,000 or more (though anyone can use the account aggregation software and get the snapshot). But the gist is the same—get people’s financial planning on the same page as their lives, which they are now largely living on their iPhones and iPads.

“The eureka moment for me was that planning is broken,” Harris says. “Nobody does it. Even the pros don’t do it. I mean, the only time that anybody does it really is as a sales gimmick.” He says when he was working on TurboTax products at Intuit, the firm built a tax planner not once but twice. “Each time the sales were zero. The same thing happened in Quicken; we built a financial planner. Sales were approximately zero.”

He said he realized gradually what was wrong: There’s a difference between knowing what you have to do and what you should do. “You must file taxes. You should plan your taxes. You must pay your bills. You should plan your finances.”

Now, with account aggregators leading the way, the tech does the math grunt work, greasing the skids for the planning relationship, he says. “We see the aggregation capability as a means to an end. It’s an enablement of building great financial service.”

He says his firm’s sweet spot is people with complex financial lives—not people in their 20s still renting apartments, but people with mortgages, 529s and investable assets of a couple hundred thousand to several million. “Why? Because that’s the forgotten middle. That is the underserved or even unserved,” Harris says. “It’s also the biggest portion of the investing public. If you have people with $50,000 or $20,000 to invest, there are lots of good solutions. If you go really high end, $10 million or more, there are all sorts of sophisticated people who are going to do all sorts of stuff for you.”

But as for those in between, it’s not cost effective for a lot of organizations to provide wealth management, he says, since it’s not the kind of thing that scales down. His service, instead, assumes that since the busy work can be taken care of by the machines—that automation will help move the service part down to the middle range investor.

By Harris’ estimate, there is $32 trillion in investable assets in this country and 33% to 40% of that is in this forgotten middle.

Again, the end goal of his firm is to get the client on the phone with a professional and establish a relationship (via e-mail or, better yet, video chats in which client and advisor can look over the clients’ account graphics together in Skype-style sessions).

Personal Capital uses ETFs but also individual securities to fine-tune the portfolio for tax purposes: to sell losers and reap losses for tax time, to defer gains, perhaps even to create gifting strategies. The approach also allows the firm to separate items that are appreciating from those generating income and put them in their proper tax buckets.

The firm doesn’t invest in hedge funds, private equity or venture capital or get involved with any commission products like insurance or annuities, though Harris is trying to figure out how to tackle those types of products, since he believes they play important planning roles.

The firm charges 0.95% on the first $250,000 in managed assets; that starts to go down as the assets multiply.

As of January, Personal Capital had hired 40 advisors to face clients, growing fourfold in 12 months, Harris says. “We’re on this rocket ship. We currently have $350 million AUM, which is not huge, but AUM is growing at greater than 10% per month [as of January 2014]. At that rate, we’ll be a billion before the end of the year and multiple billions by the end of the following year.”

Wealthfront’s Nash, who just recently took over his CEO duties, says that his firm has also seen enormous growth—skyrocketing in 2013 from $95 million to more than $750 million in assets at the end of March 2014, he says. One of the firm’s selling points, says Nash, is its aggressive tax planning help.

“We rolled out an innovative product, an index fund in your account. So what happens is that instead of buying the S&P 500 ETF, we will buy the entire S&P 500 and trade the index in your account to take advantage of stock-level tax-loss harvesting.”

Technological Backlash
Despite the different approaches, the worry among advisors might likely be that Web sites are mostly doing it backward—letting the algorithm choose the investments before the planner has sat down to discuss long-term and short-term goals—a 20-year time horizon for some college money, say, or a 40-year time horizon for retirement and short-term money for a mortgage, etc. These strategies use neutral core investing.

They can’t handle your estate planning or insurance or figure out complex cash-flow problems. All the machine does is determine the risk and long-term growth metrics. In some cases users might even be offering the software incomplete information. (Would it tell you not to invest if you had massive credit card debt, for instance?) After all, people hide things about their money. Wouldn’t that proclivity be worse online if there wasn’t somebody keeping them honest?

Furthermore, there is the tough love aspect of planning that the machines can’t offer—the ability to fire a client living beyond his or her means. Would the algorithm tell clients they need insurance or that they are paying too much in rent?

Stein concedes that a lot of people respond better to human advisors and he doesn’t seek to pry them away from those relationships. Nor, he says, does his site claim to handle complex insurance and estate planning issues. But he says advisors are starting to come to him anyway because they like the platform and want to work with it.

That way, the clients can have the best of the RIA relationship and an inexpensive online portfolio management software. (Betterment charges a 0.15% to 0.35% annual management fee, depending on the size of the portfolio, taken out every quarter, besides whatever else the ETF companies take out.) “They can have the relationship that they like, they can have the other services that they’re getting; they can have the automation and the investment rigor and the efficiency of our platform as well.”

Alan Moore, a fee-only planner in Bozeman, Mont., who mostly deals with younger investors, thinks these sites are also part of the natural evolution of the industry and pose no threat to advisors. “Over the next 10 years, we will likely lose 200,000 of the current financial advisors to retirement,” Moore says, “however, we are only graduating around 3,000 CFPs per year. These online advisory firms will begin to fill a void that already exists.”

Eventually, he says, the services will merge and blend. But he adds that we won’t know how well these firms fare until a real bear market comes.

Lush Pickings
That’s the real rub, because these firms are less than five years old. They are largely thriving at a time when all investors are thriving. The S&P 500 has risen more than 170% in the five years since its bottom in March 2009. Could these firms live through a downturn? Wouldn’t the risk be worse if panicking clients had to deal with a machine rather than somebody on the phone? After all, 2009 was a good time to pick up clients who didn’t have a human being to chat with otherwise.

Stein and Harris say no, since the whole process of online investing is already putting people into a long-term mind set.

Harris thinks that Personal Capital can benefit as much in a down market as in an up market since the service is personalized. The high touch is as important as the high tech, he says.

“I don’t know what to anticipate, but I suspect that we will do as well or even better in a down market. Why? Because people run for shelter, and part of that shelter is actually having somebody who will help them out and who understands their situation. We’ll reassure. Remember: Diversification. Diversification. Long-term investing.”  Which sounds like something any other advisor would say.

Correction: The print version of this story stated that Betterment customers can use the service with a PayPal account. Betterment does not accept PayPal.

AUM figures for Wealthfront have been updated since the story was first published.