With a graffiti portrayal of a karate-master hedgehog kicking a Wall Street sign at its office entrance, robo advisor Hedgeable is hardly subtle about its anti-establishment stance.
Brash, snarky, start-up culture — whatever you're going to call it, Hedgeable’s co-founder Mike Kane says it's truth.
“I think it’s really effective,” says Kane. “There’s really an anti-Wall Street sentiment, especially among young people, because we’ve all lived through the financial crisis and we’re just starting to raise money and save.”
Until recently, that cynicism permeated much of the advertisements promoting robo advisors. At the same time, traditional, non-robo firms played up their safety and human touch.
But with the increased adoption of automated advice tools by advisors (most recently RBC Wealth announced it would be offering a hybrid robo service), and a clear AUM gap established by incumbent digital offerings, both sides may be ready to dial back the confrontational tone of their promotional material.
"Whenever there's something new that threatens the well-being of a business, there's obviously some posturing," says Marie Swift, president and CEO of Impact Communications. "Now that advisors understand they can use the same technology to enhance their client experiences, there's been a softening of positions."
'HERE & FRESH'
Turn on the television and chances are you'll see several ads promoting automated advice.
For instance, one Wealthfront commercial features a woman looking for a financial advisor at a speed dating session. It’s not going well. Suddenly, the video freezes frame and a handsome man appears and tells the woman that Wealthfront offers “low cost, sophisticated investing with no high-pressure salespeople.”
Similar ads are popping up online, too: in a YouTube video posted by San Francisco-based robo advisor SigFig features a group of people in piggy bank suits who are about to be snookered by hidden fees. A caption reads: “Stand up to Wall Street. Protect your piggy bank at SigFig.com.”
At first, there was a good reason for the attitude.
“Not only are [independent robos] trying to reach people who don’t understand the concept yet, they are trying to create a brand,” says Raef Lee, head of new services and strategic partnerships at the SEI Advisor Network.
The approach had been to illustrate how robo advice was different from traditional wealth management: simple, low fees, transparent, plugged into the do-it-yourself culture of millennials and tech savvy investors.
"Younger firms are going after younger demographic, and they have to look more current," says Swift. "They're saying, 'We're here, we're fresh, easy to access, we can support your needs on your time, you don't have to commit to an in-person appointment, you can manage it all on your mobile device.’"
Some incumbents pushed back with their own ad campaigns emphasizing the personal connection and the human touch. Some advisors even used the term robo advisor as a derogatory word, quips SEI’s Lee.
And slowly, there’s been a shift in the messages selling automated advice, notes Dan Sondhelm, a partner and senior vice president of SunStar Strategic, an industry marketing firm.
"It's more educational, it's not about, 'We're better than you,'" Sondhelm says. "Now the message is, 'Here's an option for investors who want to work with computer rather than a human advisor. It's definitely a different approach than a year ago."
ALL ABOUT MONEY
The reasons, Sondhelm says, all have to do with money — about how much incumbent digital offerings were able to accumulate in a year, and how much a campaign that includes national TV advertisements can cost.
In a match-up of automated advice by AUM figures, Sondhelm says, "Schwab and Vanguard are winning."
Wealthfront, Betterment and Personal Capital, considered the three top independents, have a current total $7.6 billion reported AUM.
In contrast, Vanguard's Personal Advisor Services alone had approximately $31 billion in total assets under management, with $21 billion from new money by the end of 2015. Schwab has reported over $5 billion in AUM.
"It's one thing when two startups attack each other," Sondhelm says. "But when the big guys enter the space and show they are a lot more successful at gathering assets, there's not much use attempting to still say, 'We're better than you.'”
And then there's the sheer cost of running a national advertisement campaign, the best tool at hand for any young wealth management platform striving to acquire new client assets.
The average cost for 30 seconds of national TV prime time is over $110,000, according to Nielsen. In addition to getting an on-air spot, there is the cost of developing the advertisement and other charges paid to third-parties such as advertisement placement fees.
It's not an expense that any young advice platform can duck. It's a do-or-die battle, according to industry analysts, even for the well-funded startup.
"Robo advisors will have to use much of the capital they raise to pay for the tens to hundreds of millions of marketing dollars needed to gather assets and reach a profitable scale," noted Morningstar analyst Michael Wong.
Faced with strong competition and costly advertising bills just to push the needle on client acquisition, Sondhelm and Swift agree the early message needed to change.
"It's tough to continue to grow exponentially," Sondhelm says. "At some point there may be a realization that it's too expensive to compete within industry, and the marketing for an independent is not for customer acquisition, but rather to add credibility for someone wanting to buy them."
Even robo advisor firms acknowledge there's less currency in a message of human versus technology.
Such early messaging was effective in getting the media’s attention, says Tomas Pueyo, vice president of growth at SigFig. However, he says it was not a sustainable goal. “There are always people who want to talk to a human," Pueyo says, noting SigFig's hybrid approach. "They want to know there’s a human behind the algorithm and engine."
Wealthfront did not respond to requests for comment.
Rather than throwing punches, robos are focusing more on their strengths: the low-cost, modern interfaces that provide an easy user experience and giving investors control of their money.
“For most of us, our most successful messaging is around the value-add of what people can get from us,” says Kyle Ryan, head of advisory services at Personal Capital.
“We build a brand with the end consumer in mind, and we show them the value proposition of ultimately working with us,” Ryan says. Much of Personal Capital's advertising revolves around showcasing the platform’s free tools, great visuals and fee transparency, he adds.
Convenience is what resonates most, says Joe Ziemer, Betterment’s director of communications. Betterment steps in with its technology when the client or financial advisor can’t do things on their own or as well on their own, such as streamlining back-office operations and tax harvesting. “We help save them time and give them peace of mind,” Ziemer says.
As more wealth managers buy or create robo platforms, they are also met with the challenge of differentiating themselves from the robo and among other wealth managers, says Bill Militello, chief executive of Militello Capital. “They have to do something different and change their messaging to offer something a robo can’t,” Militello says.
Militello believes firms can differentiate from robos in offering planning services and access to investments they can’t get elsewhere. He mentions advanced planning, estate planning, tax work, concierge services, vetting private investments, and providing access to alternative investment vehicles.
“As you have more new entrants coming into the space, whether digital wealth management solutions or robo advisor, it forces more traditional advisors to be clear on what is their real value proposition,” says Personal Capital’s Ryan.
“There was a huge rush a year ago for all the advisors to hook into some robo platform because they view it as some kind of marketing tool,” says Hedgeable's Kane. “But are people going to use Joe Schmoe Asset Management just because you have a place for them to sign up online?”
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