The long-running debate about whether robo-advisors pose a threat or present an opportunity for RIAs and their practices is, in my opinion, settled – in favor of the robo opportunity.

It wasn’t that long ago that almost every RIA I spoke to was concerned about what they perceived as the potential negative impact on their practices from robo-advisors. Today, I don’t hear RIAs talking as much about the threat robo-advisors may present, but I wonder if it’s a matter of greater understanding and acceptance of the robo-advisor opportunity or if some RIAs are simply ignoring the issue.

Many still have not adopted a robo platform, as Financial Planning’s latest annual technology survey seems to bear out:

  • While 38% of advisors say robo-advisors will transform the wealth-management industry in the next one to three years, only 18% say their firms have adopted robo technology.1

At the same time, other research indicates that robo-advisors are here to stay:

  • Robo-advisor assets under management (AUM) in the United States are forecast to experience a compound annual growth rate of 21.3%.2
  • That will result in projected U.S. robo-advisor AUM of approximately $576.5 billion by 2022, up from an estimated $226.2 billion in 2018.3
  • Globally, robo-advisors are projected to manage approximately $1 trillion in assets by 2020 and $4.6 trillion by 2022.4

In my opinion, the rise of robos is not a surprising development at all. Many investors simply prefer the key attributes of robos, namely lower minimum investment thresholds, reduced fee structures, automatic portfolio rebalancing features, and immediate accessibility to their accounts from smartphones, laptops, and tablets. Add to the mix the fact that people are increasingly relying on mobile technology to manage almost every aspect of their lives, including their personal finances, and it is not hard to understand why robo-advisors are gaining ground and assets.

Potential Benefits of Going Robo

At OppenheimerFunds, we have no vested interest in whether RIAs adopt robo-advisor platforms, as we do not offer a robo solution. However, we do have an opinion, based on what we see taking place in the RIA space and our close working relationships with RIAs across the country.

I believe that, if implemented properly, a robo platform may actually serve as a complement to an advisor’s practice. Robo-advisors can offer technical efficiencies that enable better client communications, enhance the client experience, and create potential opportunities to generate new revenue.

Almost every RIA I speak to already relies on trading, tax optimization, and customer relationship-management software, among other technology tools, to streamline operations and maximize productivity. While technology generally represents the largest annual expense most RIAs incur, the vast majority tell me they see technology as an advantage.

When it comes to adding a robo-advisor platform, a cost-efficient solution exists for most RIAs. Many custodians offer a white-label robo-advisor product. Implementing these ready-made systems eliminates the investment of time and money an RIA would have to commit to developing its own robo-platform. And while RIAs are not obligated to use the technology solutions provided by their custodians, the time, energy, and resources they would spend developing their own robo platform are likely better spent serving clients and building their practices.

Robo-Advisors: Not an Either or Proposition

So, why the hesitation on adding a robo-advisor platform? Maybe it goes back to the perception that robo-advisors pose a threat or will cannibalize your practice.

But rather than view robo-advisors as a threat to your business, try looking at robos through a different lens to see how they might be additive to your practice. Robos open a door for potential incremental business with clients who may prefer to communicate and transact online with a lower fee structure, and do not want to speak with an advisor. Those prospective clients will probably be a younger, more technology-savvy constituency, and may include the children and grandchildren of existing clients with whom you have longstanding relationships.

Other, more financially sophisticated and knowledgeable clients may have no interest in personalized financial planning services and investment advice. They want to manage their portfolios themselves with the basic assistance a robo-advisor platform can provide.

For RIAs, it is certainly not an either/or proposition. Clients, especially in times of market turmoil, will always find comfort in knowing that someone is looking after their financial interests. They want the human touch and calming influence of a highly skilled, experienced investment professional who has navigated the peaks and valleys of volatile markets, not an algorithm, and they’re willing to pay for it. A robo-advisor platform may provide a useful complement to an RIA’s practice that can free-up advisors to do what they do best – focus on developing and implementing strategies that best serve the needs of their clients.

In my view, the risk-reward potential of bolting-on a robo-advisor platform to an existing practice is favorable, especially for RIAs who are able to deploy one created by their custodians. At a minimum, it is well worth exploring whether it makes sense.

 
  1. ^Source: “Tech Survey: The forces reshaping wealth management,” Financial Planning, 12/1/17.
  2. ^Source: Statista FinTech Report 2017, December 2017.
  3. ^Source: Statista FinTech Report 2017, December 2017.
  4. ^Source: “The Evolution of Robo Advising,” BI Intelligence, June 2017.