© 2019 SourceMedia. All rights reserved.

Who will write the wealth industry’s future: Big banks or robo advisors?

Wall Street’s biggest players keep rolling out new robo advisors — but they’re still playing catch-up, according to one of the original digital advice leaders.

“The future will not be written by the large incumbents,” says Betterment CEO Jon Stein, pointing to what he sees as the nimbler nature of the advisory industry’s smaller players relative to their larger traditional rivals.

Stein, who was speaking at SourceMedia’s In|Vest conference in New York, founded his firm in 2010. Betterment currently manages more than $16 billion in client assets.

His firm and others like it cater to an underserved segment of the market, Stein says, adding that the current structure of the wealth management industry is “dumb.” Hefty account minimums present barriers for most Americans seeking financial advice and pricing is too high while the nation suffers from a retirement crisis, he says.

“Investing is not built for real people or saving for retirement. And we have an obligation because pensions are gone,” Stein says. “We’re creating real benefits for a defined benefit world.”

Barry Ritholtz, Left; Jon Stein, Middle; Kapin Vera, Right

To be sure, Stein’s corner of the market has become crowded as even more firms add digital advice platforms. Voya Financial recently introduced a robo advisor that includes an active portfolio, joining a number of preexisting players such as Charles Schwab and Vanguard.

Other competitors are building out their existing options. Bank of America Merrill Lynch recently added a digital-plus-human-advisor option to its existing wealth management offerings, which included a self-directed platform and pure robo advisor.

Barry Ritholtz, whose independent advisory firm recently partnered with Betterment to revamp its digital offering, says the advice business has historically struggled to make available quality offerings at competitive pricing for lower-income investors.

“We hated turning down people who had $50,000,” says the chairman and co-founder of Ritholtz Wealth Management, a New York-based RIA with more than $1 billion in AUM.

His firm’s new solution sought to correct that. “We wanted one where a client could land on a landing page, link an account and transfer money. A human should not have to be involved,” he says, citing Betterment’s technical skills as a reason he partnered with the firm.

Yet despite their innovative prowess, the industry’s startups still have far to go, Ritholtz says, noting that robos manage billions whereas Wall Street’s traditional giants hold trillions.

“When you look at what we are trying to accomplish, we are just scratching the surface,” Ritholtz says.

For reprint and licensing requests for this article, click here.