While robo advisors are currently just a wafer-thin slice of the trillion-dollar wealth advisory industry, they have already garnered $4 billion in assets under management, according to Forrester Research, the independent market-research firm.
And they are of wide enough interest to be the subject of a jammed sessions at SourceMedia's InVest 2015 conference on digital disruption in wealth management and at the company's Women Advisors Forum, both taking place in New York last week. (SourceMedia is publisher of Financial Planning, On Wall Street and Bank Investment Consultant.)
"The threat of robo advisors is real, and it's here," says Deborah Fox, founder and CEO of the Fox Financial Planning Network in San Diego. She shared tips on fending off competition from automated financial planning platforms.
Fox believes that wealth management firms have to come to terms with the new technology. "Two things will happen," she explains. "There will be a lot of firms that will use the technology, and those who don't will be at a disadvantage because (those who do) will be able to perform some activities at a much lower price point and attract new demographics."
Here is a case in point: In May, the Vanguard Group formally introduced a robo advisor platform, dubbed Personal Advisor Services, which has already attracted around $17 billion in assets under management while still in its pilot mode. One of its biggest draws is a heavily discounted fee: 0.3%. This is less than one-third of conventional advisory service fees, which range from 0.99% to 1.99%, according to industry data.
Advisor automation is particularly attractive to the newest generation of investors, those born in 1980 and later. "Millennials want (investment) information at a competitive price," notes Tom White, founder and chief executive of iQuantifi, a virtual wealth advisory platform.
But although robo advisors have been around for several years, only recently has the industry made significant strides in making them user-friendly. "I think robo advisory is limited to asset management right now," White says. "However, we have fully automated the financial planning process, so you don't need a human to expense advice."
A few advisors are already feeling the pinch. Early in June, at the FPA Forum, Fox encountered an advisor that had lost significant business to a robot for the first time. This advisor "had lost a $180,000 account to a robo advisor and was very worried, because there were two other clients attached to (the first) client; so she stood to lose $800,000," she says. "That shows you it's starting."
And the lure of the technology is not restricted to the youngest investors. For example, Bo Lu, co-founder of the robo advisory firm FutureAdvisor and a speaker at InVest, says his clients are 40 years old and above, and he believes they are every bit as tech-savvy as the millennials.
All is not lost, of course. Robo platforms "cannot take over human touch," Fox says, "and that's how financial advisory firms will be able to beat them by combining the two."
In the future, she concludes, the winning combination will be extensive automation fortified by a heavy dose of personal attention.
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