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Disrupting the Disruptors: How to Deflect Robo Competition

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LAS VEGAS -- History is filled with examples of industries, companies and professions overtaken by innovative, lower-cost competitors. With robo advisors taking market share from their traditional brethren, wealth managers are being urged to showcase how their services can make a real difference for clients and prospects -- or face the consequences.

Web-based advisors are offering their services at just a fraction of what traditional firms charge -- just 25 basis points -- said Judson Bergman, chairman and CEO of Envestnet, at an IMCA annual conference session on the threat and opportunity robo advisors present.

In addition to the substantially lower costs, “robo advisors are a platform, not a product, and that's what emerging investors want,” Bergman said. At the same time, competition in the marketplace is surging.

"If there are 200 [robos] now, there will be 500 in a few years,” he added. “The barriers to entry are so low,” especially with venture capital and private equity so plentiful.

"How can anyone sit in this room and think that technology will not disrupt their practice?" asked ex-Fortigent executive Scott Welch, the founder of UnconstrainedThought, a D.C.-based consulting firm.

"If a prospect came in with a diversified portfolio created by a robo advisor and asked, "'What do you add beyond this?' What’s your answer?” Welch asked the crowd. He cautioned against thinking that web-based firms are nothing more than recommenders of low-cost index funds.

“It’s a mistake to think of robos as just an ETF solution; that's just where we are today,” he said, with Bergman adding that he regarded Vanguard as the “largest digital adviser” with ranks of loyal, wealthy customers for its ultralow-cost ETFs and mutual funds.


How can traditional advisors maintain and grow their practices as the robo sector evolves?

Welch answered by starting with a question: "When something becomes commoditized, where does the emphasis turn to? Marketing, branding and service," he said.

Customer experience is essential, said Steve Lockshin, chairman of Convergent Wealth Advisors. “Five years from now,” he said, “changing brokerage accounts will be as easy as changing cell phones,” so be especially careful to build client loyalty by giving them the attention they want.

The panelists also advised fighting fire with fire by leveraging technology as much as possible. The average advisor is growing client accounts in his practice by 4% to 6%, Bergman said, while the most technologically adept firms are growing their client rosters at a rate of 10% to 12%.

Complacency is a real danger, the panelists said.

"A common belief is [robos] aren't making any money,” Welch said, “so they’re not a competitive threat -- until they're acquired and become more potent."

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