BOSTON -- Few topics of late have generated more buzz and hype in the investment advice industry than robo advisors.
In launching a raft of startup companies offering new online advisory services, swarms of entrepreneurs, technologists, venture capitalists and others have set their sights on a major disruption of the financial planning world.
Michael Kitces isn't drinking the Kool-Aid.
Kitces, director of research at Pinnacle Advisory Group and a Financial Planning contributor, participated in a point-counterpoint debate on the relative merits and impact of the robo advisor model here at the Financial Planning Association's annual conference
Of the idea that a firm can win over a younger generation of investors simply with a slick online interface, he takes a dim view.
"I'm certainly upbeat about all of us just getting better tools to help our process" Kitces says. "But the idea of saying hey I'm going to take this technology tool, put it on my website and millennials who don't currently come to my website will suddenly show up in droves and hand me their life savings just because I added this onboarding tool and charge them very little money, frankly it's not working that well for the companies that have $100 million of venture capital and can't figure out how to make it work. I just don't really see realistically how it' going to happen for most of us."
Kitces' sparring partner for the robo debate was Lex Sokolin, chief operating officer at Vanare, a New York firm that offers a digital wealth management platform geared for advisors.
"The fact that they're not showing up is the problem, because they don't have a reason to go to the website," Sokolin says of investors in the millennial generation.
THE GREATER THREAT
Introducing the debate, Rich Ellinger, CEO of Wealthminder, a robo firm based in McLean, Va., framed the discussion of robo advice as a mechanism for RIAs to tap into the underserved market of younger investors who, individually, might not hold large pools of assets, but collectively account for trillions of dollars of potential AUM. In robo technology, he sees a lower cost of entry for advisors to serve that market using a lighter-touch approach than how they work with high-net worth clients.
"There's this huge opportunity and the challenge historically, from my perspective, is the technology you have to work with takes just as much time to service a high-net worth and what we'll call a lower-net worth client," Ellinger says. "If the technology can overcome that barrier where people with simpler needs can be provided services much more quickly and efficiently, it opens up a huge opportunity for you to grow your practice in ways that maybe you haven't been thinking about."
Sokolin argues that firms that ignore the robo model aren't just bucking a trend, but are actually putting themselves at a competitive disadvantage given the moves of some of the industry heavyweights.
"At this point it's really not a question of should you -- it's a question of how do you integrate robo advice into your business," he says. "Because Schwab is out there in the marketplace. Vanguard is out there in the marketplace already with these solutions they've been working on for a couple of years."
That might be one of the few areas where Kitces and Sokolin find agreement. Kitces looks at the ways that firms like Vanguard and Personal Capital have begun using technology to connect in-house financial advisors with clients, and argues that those moves will have a far greater impact on the advisory industry than pure-play robo outfits like Betterment and Wealthfront.
"They're actually the greater threat and disruption for us because honestly they're not robo advisors -- they're traditional RIAs doing financial planning and wealth management using technology better than most of us use technology. That's not about like a robo, automated self-service thing. That's just -- this is what happens when firms with large size and scale and capital invest heavily into technology."
'A NATURAL PROGRESSION'
Several times Kitces, an active user of social media, insisted that he is no Luddite and freely acknowledged the role that technology can play in a practice, appealing for e-signature tools and better portfolio-rebalancing software.
But he openly mocks the idea of an RIA launching a new business initiative targeting a younger set of investors who don't seem particularly inclined to engage with an advisor.
"When I look at our growth opportunities for advisory business I don't really imagine, like, oh, I've got a great new idea: let's go after do-it-yourselfer millennials. Like, this is not how I leverage the resources of an advisory firm," he says.
"We need help, too," the boyish looking Sokolin shot back, drawing laughter from the audience.
He elaborated, arguing that the robo movement is about more than catering to the whims of a younger generation, that it's really a natural progression of the way that consumers broadly expect to handle their affairs.
"The introduction of the concepts of robo advice is not because you're trying to serve children who are different," he says. "It's about how do you build the delivery of wealth management in the future to everybody."
Moreover, he argues that the term "robo" is hardly a one-size-fits-all proposition, that the nascent market will continue to develop new models, including lightweight options that advisors can incorporate without revamping the way they run their practice.
"I think you'll see completely self-directed models, you'll see fully advisor-enabled models where it's the advisor driving the interaction using robo tools, and then you'll see everything in between," Sokolin says. "It's not this huge enormous decision that's going to blow up your business. It's something you can try."
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