The digital-advice market is expected to grow to nearly $500 billion in the next four years, according to Cerulli Associates.

Yet many of the largest brokerage firms are unsure whether to jump in.

The heads of Merrill Lynch and Wells Fargo said in recent interviews that they were looking at how to get into the market.

Meanwhile, the leaders of Raymond James and Edward Jones have sworn off robo-advisors, saying that they don’t want to cannibalize their financial advisors.

A key factor in how firms are approaching this developing market is whether the company is already serving direct investors, observers say.

Bank of America Corp., for example, has Merrill Lynch and Merrill Edge, its call center service for direct investors, says Sophie Schmitt, an analyst at research firm Aite Group.

It is a natural evolution for the company to move toward a robo-advisor or similar service, she says.

“In the scheme of things, it’s not that different from what they are doing with the Merrill Edge advisory center,” Schmitt says.

“Perhaps it’ll be a cheaper rate than what you can do currently with an advisor,” she says. “For them it’s another product.”

John Thiel, head of Merrill Lynch Wealth Management, highlighted the company's existing capabilities when discussing how it would implement a robo-advisor service.

“It would be stand-alone if clients want to self-direct,” he says.

“We have that option today in Merrill Edge,” Thiel says. “So to me, it’s very analogous to direct investing, where someone feels like the algorithm is what they are looking for in a relationship, and they don’t see behavioral advice or financial planning — what we see as very important — as important to them, at least at this moment.”


Like Bank of America Merrill Lynch, Wells Fargo has multiple lines of business. Both companies serve tens of millions of Americans on multiple levels, from credit cards to mortgages to investment accounts.

Another factor, often overlooked, is the overseas markets. For example, Toronto-based RBC and Zurich, Switzerland-based UBS have retail banking services in their home markets and others, and they face additional competitive pressures from firms overseas that are developing robo-advisors and other digital offerings, Schmitt says.

“Robo-advisor is a very narrow thing, in my opinion,” she says.

“It’s like Betterment. Some of these are not Betterment, but they are offering [digital] advice,” says Schmitt, who notes that the United Kingdom has one of the more developed digital-advice markets.

For firms such as Edward Jones or Raymond James, which have thousands of advisors across the United States, it may not make a lot of strategic sense to begin competing for the direct investors’ dollars.

“We think we offer value in guidance and advice,” says Jim Weddle, head of Edward Jones. “An 800-number and algorithm isn’t going to replace our folks.”

But that doesn't exclude the possibility — and necessity — of upgrading the digital services offered to clients.

“Robo-advisors will push everyone, us included, forward in terms of the quality of the tools and the functionality of the desktop to benefit the advisor,” Weddle says.


The timing of technology adoption by firms will be important, says Marlon Weems, head of consulting firm Hillcrest Strategies.

“I expect the fintech-for-wealth management story to play out in a fashion similar to the rise of algorithmic technology a decade ago,” he says.

“The early adopters bought many of the start-up algo shops and retrofitted their technology into their platforms. Others made the choice to build internally, but many were in denial that a paradigm shift was under way, Weems says.

“Firms that fail to recognize and adapt to the sea change currently taking place in wealth management will be at a competitive disadvantage,” Weems says.

Schmitt expects that in the next two years more of these traditional brokerage firms will have launched digital-based services, giving better account access to clients, aggregating data and eventually providing more robust analytics tools to advisors.

“I think analytics is going to be huge, but beyond that, it’ll be, ‘let’s get the information together first,’” she says. “It'll probably take longer for the analytics piece to come together and be truly valuable for advisors.”

Nearly every executive interviewed recently has talked up the investments that they are making or will make in their digital capabilities, even if they are avoiding duplicating the offerings of start-ups such as Betterment.

“Bottom line, I think everyone is working on the components of a robo-advisor,” Schmitt says.

This story is part of a 30-day series on leading tech trends for advisors. It was originally published on Nov. 4, 2015.