They may be presented as disruptors of the wealth management industry. But robo advisors have their doubters even among the digital-first crowd, who worry the business model is unsustainable without achieving massive scale, AUM and premium features that people will pay for.

“One of those three things is what they will need to build a company around if they want to outlive this initial influx of VC money that’s really keeping them going right now,” said Tad Z. Slaff, co-founder and CEO of Inovance, during a fintech conference on Thursday in Jersey City, N.J. “Right now it’s in danger of being commoditized. It’s a race to the bottom on who can have the lowest fees.”

Other predictions offered at the event included more acquisitions of digital wealth management businesses, such as Northwestern Mutual's Learnvest deal; more traditional wealth management companies rolling out digital offerings; and successful robo advisors becoming a one-stop place for customers not just to invest but also to oversee the rest of their financial profile.

“It’s going to be really interesting how it shakes out,” said Michael Carvin, co-founder and CEO of SmartAsset, a PFM software startup.

The conference was organized by the New Jersey Tech Council and featured a panel with Slaff, Carvin, and several other fintech leaders who held forth on the future of digital wealth management.

“The year 2014 was dominated by a lot of discussions about digital client engagement and digital wealth management,” said Tim Foster, vice president of businesses development at Philadelphia private equity firm LLR Partners, and panel moderator.

“Clearly wealth managements firms are going through a much needed redesign. There are opportunities and there will be some challenged by that. I think the next 12 months is when the rubber really hits the road in terms of digital wealth management and firms trying to get a handle on it making it work or not making it work.”


Robo advisors have a tiny piece of AUM compared to traditional wealth management firms, but they represent a hot sector that is seeing an influx of venture capital, press, users, and growing AUM. A reported $16 billion AUM was in the digital wealth management space at the end of last year, according to Aite Group. By the end of this year, there will be an estimated $50 billion. A great deal of this growth is attributed to established companies such as Vanguard offering their own robo advising platforms.

“One of the trends we see is that the b-to-c robo advisor model requires huge scale and huge brand,” said Alexey Sokolin of Vanare, pointing out Betterment and Wealthfront as examples. Both companies have quickly grown exponentially with infusions of venture capital and offering low fees on accounts.

“You also see that in Schwab and Vanguard, which had been to able match that asset growth just because they have the eyeballs and they can do that marketing,” he added.

Other digital wealth management firms trying to increase their client base in a similar, low-fee business model include WiseBanyan, Hedgeable, and Motif Investing. Many of the panelists agreed this was unsustainable unless these businesses offered premium features or were bought by another company. WiseBanyan, which bills itself as the “world’s first free financial advisor,” offers some paid products and services.


John Michel, CEO of Circle Black, foresaw the digital wealth management space being dominated by traditional players such as Schwab, Merrill Lynch, and Vanguard and the existing businesses that solely cater to investors being bought out.

Some of the panelists thought the traditional wealth management businesses such as Schwab were not convinced that the robo advisors are here to stay and the acquisition of these robos is a way to hedge for the future or is a defensive measure.

Carvin said it seemed these firms are in danger of cannibalizing their own very successful businesses with these robo offerings by luring away their existing clientele.

“I really think the winner is going to be a balance between having that personal relationship with an RIA and the advantages of services that a robo advisor provides. Larger companies are in a position to offer both,” said Slaff.

Another business model that had been discussed during the panel was Sokolin’s founding of NestEgg Wealth, a robo advisor firm bought in 2010 by Vanare for an undisclosed sum. Rather than compete for consumers, the firm offered its services to financial advisors.

“One of the very first observations we had was we wanted to work with financial firms and work with advisors and work with assets that already exist rather than move away and try to make our own brand and try to compete where the assets are,” said Sokolin.

In other predictions, Carvin guessed that customers will also seek to consolidate their financial profile into one robo advisor instead of using multiple companies. Successful robo advisors will be a one-stop shop as they offer an overview of not just investments but also bank account balances, expense tracking, and other services, he said. Carvin pointed out Personal Capital as an example.

“Investing is a small portion of your financial profile,” he said. “Your robo advisor can really become a more comprehensive place to interact with your personal profile.”

Circle Black's Michel disagreed and said clients have become increasingly distrustful of relying on just one institution especially after the 2008 financial collapse and the likes of Bernie Madoff.

“Don’t put all your eggs in one basket,” he said. “I don’t think tech solves that psychological problem.”

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