Like Internet banks, robo-advisors will find a niche and create a lasting legacy, argues Silver Lane, but independent enterprises like Betterment and Wealthfront may not disrupt traditional financial firms.
With the attention of traditional advisors like Schwab and Vanguard, which have developed their own robo-advisors, and BlackRock and Northwestern Mutual, which have entered the market through acquisitions, the focus on independent robo-advisory firms will fade.
To maintain their market share, independents will be pressured to spend more on marketing and to provide more human services, but lack the economies of scale to compete with the Schwabs and Vanguards of the world, Silver Lane predicts. That may be why firms like Betterment, which recently announced it will begin offering 401(k) plans for small businesses, appear to be pivoting toward the business-to-business market.
Investors will likely demand that their traditional advisors provide some of the automation and streamlined digital interface of robo-advisors, but will still want their own advisor, writes Silver Lane, “Today’s consumer wants eAdvice, not an eAdvisor, just as yesterday’s wanted online banking, not an Internet bank.”
This means advisors have an opportunity to adopt digital advice tools to efficiently serve a larger segment of investors.
“Our sense is that traditional advisors who wish to combat the robo-advisor wave are more likely to create a new, low-touch automated service offering as a complement to their existing books of business. One study estimates that 8% of top advisory firms currently offer some sort of robo-advice, with another 20% planning to do so within the next 12 to 24 months.”
And robo-advising technology is likely to survive well into the future, but not necessarily on the business-to-consumer level.
“Internet-only banks generally did not survive, but technology companies that enabled traditional banks to get into online banking thrived,” writes Silver Lane. “The same principle applies here. Our sense is that advising the advisor will be a better stand-alone business than advising the unadvised.”
Silver Lane predicts that other traditional fund-issuing firms, like State Street and Invesco, will be the next big players in the online advice industry, and that independent robo-advisors playing at becoming disrupters may actually find themselves losing steam and jumping the shark toward irrelevance.