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October 29, 2015 4:10 pm

Trick or Treat: Are robo advisors really that scary?

A few months have gone by since my last blog post on the robo-advisor market, and the hype on robo advisors is still going strong. With Halloween on the horizon, it seems like a good time to explore whether or not robo-\ advisors are really that scary or if we’re all being tricked into wasting time analyzing and watching a short-lived trend that will soon fade.

If the latest robo-advisor growth forecast that A.T. Kearney published in June is accurate, it’s a little scary. The A.T. Kearney model predicts that assets under management by robo advisers are estimated to increase 68 percent annually to about $2.2 trillion by 2020. The scary part is not just the growth, but the prediction that half of that is expected to come from money that’s already invested. That means that traditional advisors not only risk missing out on newly invested assets (especially from the millennial generation), but they also risk losing client assets they may already be managing. While $2.2 trillion is a fraction of the $18 trillion+ wealth management market, it’s still over 10%, and no advisor wants to take a 10% AUM hit.

The other scary aspect of this is that the large brokerage firms are taking the threat seriously. Many of them, including Schwab and Fidelity, have either acquired or partnered to build out their own robo advisor capabilities. So, while you may have been feeling confident about your ability to compete with the robo-only firms – after all, they are all automation with no face-to-face advisor interaction – you probably can’t be as self-assured in your ability to compete with a firm that offers both the speed and autonomy of a robo-platform AND the reassuring advice of a team of experienced advisors.

RobotStill not scared? I do think that there will be plenty of advisory firms who stick to their guns and remain purely in the traditional model of doing business. After all, even before robos emerged, advisory firms ran the spectrum of tech-savviness – from still managing models in spreadsheets to fully tech-enabled across the full wealth management lifecycle. Robo advisors just added more technology to the equation by tech-enabling clients.

But if you’re a firm who truly wants to lead the market, grow market share and continue to innovate your wealth management business, it’s time to take some action:

  • First and foremost, you need to equip your advisors with the right technology. Technology that will automate core advisory processes from proposal generation to portfolio management to reporting.
  • Second, you need to empower your clients with tools that enable them to take a more active role in their investments, namely a client portal.
  • Third, you need to keep your firm on forefront of investment programs to differentiate yourself and demonstrate value worthy of your higher fees, even if that mean outsourcing.
  • And finally, you need to embrace the concept of a “hybrid” advisor – one that leverages the full potential of technology for efficiency and innovation while also delivering the hands-on expertise and face-to-face reassurance that only a human being can deliver.

If you haven’t already done so, download our whitepaper How to Compete with the Robo-Advisor and Win to dig into the details of what processes are most likely to benefit from wealth management technology and learn what you need to do to position your firm to compete more effectively with both robo advisors and traditional wealth management firms. We promise it’s all treats and no tricks.

Happy Halloween!