Flesh-and-Blood Financial Advisers Face Threats from Software Advisors
Flesh-and-Blood Advisers Face Threats from Robots
Hilary Johnson / Reuters
4:26 PM ET
Last month, both Charles Schwab Corp and Fidelity
Investments unveiled so-called “robo” advice programs that offer free or very
cheap algorithm-driven portfolio management to investors.
That strikes fear into the hearts of many financial
advisers who typically charge 1% or more of assets under management to offer
personalized advice to investors.
Some, such as Ritholtz Wealth Management, are responding
in kind. Earlier this month the firm launched Liftoff, a digital portfolio
management tool aimed at young would-be clients with under $100,000 to invest
who want account oversight but don’t need complete wealth management. The new
offering aims to give investors easy and inexpensive (0.4% of assets per year)
access to the firm’s investing strategies and to keep those clients in the fold
as their wealth grows, said CEO Josh Brown.
Upside, the San Francisco-based startup that provides the
technology behind Liftoff, is also working with other registered investment
advisers to offer a way to compete with the direct-to-consumer “robo” offerings
from such firms as Betterment and Wealthfront, which offer consumers
digital-only access to low-cost ETFs and automatic portfolio design and
rebalancing through algorithms.
On Oct. 27, Charles Schwab announced it was moving into
the automated advice space with a free product.
Fidelity said on Oct. 15 that it would refer its advisers
who wanted a low-cost automated investment offering to Betterment, one of the
largest of the new robo-advisers.
Still a Small Space
Advisers who fear their business will be undercut by
products like these should remember that the current competitive threat is
tiny, accounting for less than $5 billion in assets, said Sophie Schmitt,
senior analyst at Aite Group, a research firm. So, panic isn’t necessary,
though it’s probably a good time to make some moves.
“The traditional financial services world is waking up to
the reality that clients want to consume financial information digitally, and
2014 is a pivotal year,” Schmitt said.
Advisers can start to compete with these automated
products by offering clients online access and beefing up the technology tools
they use themselves when working with clients, she said.
One case in point is Merrill Clear, launched earlier this
year by Bank of America’s Merrill Lynch, which allows advisers to help clients
plan for retirement, and prioritize goals on iPads.
Flesh-and-blood advisers who use digital tools have an
advantage over algorithms because they can “marry technology and human
behavior,” said Daniel Satchkov, president of Rixtrema, a firm that offers
software advisers can use to demonstrate portfolio risk to clients.
Brian Eddy, a Beverly, Massachusetts, adviser, said he
agrees. His firm, PortfolioFix, offers online access to their accounts and
automated portfolio rebalancing. But he also talks to them in person, on the
phone and via Skype, the teleconferencing program.
“There’s always going to be a market for someone who’s
available to the client on a one-on-one basis,” he said.
Comments
Post a Comment