Are Robo Advisors Really Dying?
By Roger Nusbaum, AdvisorShares ETF Strategist
Cullen Roche had a post that took down the robo-advisor concept from the standpoint of it not taking a whole lot of effort for investors to create similar portfolios on their own without the extra layer of fees. He also notes that much bigger fish than the robo-only firms have been rolling out similar offerings with more to follow. The catalyst for Cullen’s post was news of a CEO change at Wealthfront which along with Betterment, are the two most well-known robo-advisory firms.
To the extent the robo concept was new and potentially useful with the promise of profitability (it is both of those things) there was always going to be larger players that would enter the market, this is the sort of thing where first movers can’t necessarily maintain their advantage. The disruptive technology in this equation is the exchange traded fund, not the robo platform.
That does not invalidate the idea in my opinion but I agree with Cullen that this niche will evolve to the point of 2020 robo looking a whole lot different than 2013 robo and maybe the first movers will be able to be out in front of whatever that looks like or maybe not.
What is not going away is the desire for some reasonably large segment of the population wanting to delegate the task of asset management. Where all of this fits under the heading of fin tech (I’m just saying ETFs are the far more important fin tech versus the robo platform) financial advisors will need to put in the time to understand and incorporate this sort of innovation and then whatever might come next if they want their practice to sustain.
Sustain doesn’t necessarily just mean for the length of your career. If you want to retire at some point your clients will still need help. Obviously, it is becoming increasingly common for retiring advisors to hand down or hand off their practice in exchange for some sort of income stream or one big check. In the name of your own financial planning, this is potentially an important dynamic the lives of advisors as well as being able to provide value and service in the manner the client wants. Chances are someone who is 30 years old today will have much different ideas on how they want to engage an advisor than their parents, your existing client.
While I don’t know how important generational issues were in the past, they certainly have become more important today. In past posts, I’ve talked about how my involvement in firefighting creates an opportunity to problem solve in a way that might be different than investment management but that difference can help how I problem solve in my day job.
Last week I sat on a panel that interviewed two prospective candidates to run the regional communications center that dispatches all the local agencies including Walker Fire. Both candidates brought up the importance of understanding generational issues in order to effectively manage people. Young people have always been different, that is the nature of being young. This is important within our department. I am 50, we have a few guys close to my age but not many, we have a lot of firefighters much younger than me and a lot that are in their 60’s or even older. The better I can understand what is important to all cohorts, the more effectively the department can be run which hopefully results in a better fire department.
I think this applies directly to practice management and the need to stay current on product and platform evolution and how clients want to engage products and platforms.