The initial set of high profile robo advisers had to blaze their own trail, solve tough challenges and invest a lot of capital to get where they are today. While some forecasts show the number of different robos peaking, it is possible that the work done to date has simply created the building blocks for many more robos to come. What kind of evolution are we experiencing?

Early robos faced limitations from the larger, better-known retail custodians who kept their systems locked down due to security concerns. Their only choice for a fully automated solution was to partner with relatively unknown custodians because they were the only companies that had created APIs the robos could connect to. This allowed them to open accounts online, custody assets and execute trades through available web services.

Then, some robos went further. They eliminated the need for a third-party custodian altogether by creating their own broker-dealer. In doing so, they owned the entire stack and could completely control the online experience.

Still, it was often necessary for robo firms to build their own portfolio management technology that would allow them to trade the accounts and rebalance on an ongoing basis. Now, even that capability is available. Firms today offer the entire account opening, custody and highly flexible investment modeling functions through a web service.

EMBRACE REVOLUTION
These advances have a much broader benefit beyond the cadre of robo firms. Human advisers also have the latitude to create proprietary model portfolios comprised of different investment vehicles, while letting the technology take care of the rebalancing and trading. If money comes in, it will trade it to the model; if money needs to be raised, it can execute the trades and rebalance.

It’s all fully automated and the technology is taking care of the entire portfolio implementation. Powered by technology and designed with robos in mind, this 'Bionic Adviser' may be the most important outcome of the industry’s evolution.

Here’s why: after learning to use digital technology to automate investment solutions, advisers have more time to focus on taking care of clients and scaling the business. If you think about the automation, APIs and integration as the central engine of the practice, the front end, website, messaging and value proposition unique to each adviser is where differentiation will live.

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Advisers have more time to focus on taking care of clients and scaling the business.

In contrast to the predictions of an overthrow by robos, technology may save the relevance of some advisers, planners and financial companies. All they have to do is embrace the evolution, rather than fight it.

For those reluctant to change, good luck with that. As low as pricing is getting online, it will get even lower. If you put more supply in the market, people will provide solutions at a lower and lower cost. No matter how you argue, the competition will create pricing pressure for everyone.

ROBO MULTIPLICATION
If you’re an adviser whose practice is solely based on investment management, you have to take on 10,000 clients instead of 100 because you’re going to be making a fraction of your current fee. Unless you are a bionic adviser with full automation, handling a tenfold increase in clients without adding huge costs will be impossible.

On top of handling volume, you’ll also need to differentiate what you do by expanding the services you’re providing to add additional value to the client relationship. The traditional investment management, and to a certain degree conventional planning, are math exercises where technology can sometimes outsmart us people. On the other hand, services that are truly personalized to individuals, or serve niche markets with proprietary insights, can provide real differentiation.

The robos and tech players are making advances in these areas and creating more tailored service offerings. Ellevest is an example of a company that tapped into technology from FOLIOfn to deliver investment advisory services oriented toward women. Expect to see more niche firms built on automated investment solutions with additional features and benefits to appeal to target markets.

Highly automated robo firms will continue to multiply and push further by taking advantage of the technical foundation that’s already been created. There will be huge winners in the robo race, even though it’s too early to call.

In the bigger picture, the whole industry can win if we view the robos as a form of evolution, not revolution. More advisers must embrace the best ideas to ensure we deliver what people really need and value.

Mike Capelle

Mike Capelle

Mike Capelle is head of United Capital's technology platform. One of United Capital’s founders, Capelle is responsible for the company’s technology and for driving enterprise innovation.