The latest guidance from the Labor Department on its fiduciary rule was a revelation for many digital advice firms and asset managers, as it cast doubt on the viability of a business strategy centered on robos and proprietary products.

Though a new Donald Trump administration next year could throw the entire rule into doubt, there still is plenty of change happening in the industry says Eric Clarke, CEO of Orion Advisor Service.

"There are certain business models that will be significantly disrupted," he says. Reflecting on the new guidance as well as the surprise leadership change at Wealthfront, Clarke says the pressure on robo advice platforms to perform has increased.

Speaking at the recent T3 Enterprise conference in Las Vegas, Clarke noted that brand familiarity and a ready flow of clients will help determine which platforms find success.

What jumped out at you when you read the new Labor Department rule FAQs?

I believe what the DoL wants and what I think they are trying to achieve is conflict-free advice for qualified plans and IRAs.

They simply want that advice to be as objective as possible.

Right now, there are certain business models that will be significantly disrupted because they are receiving payments from all sorts of sources for their services and offerings.

That obviously is what the Labor Department is trying to address and bring to an end.

With the restrictions spelled out in the FAQs regarding proprietary products, what do fund providers that have robo platforms do now?

Firms like Betterment and Wealthfront, they've raised hundreds of millions of dollars.

They have to spend a massive amount of money to build a consumer brand. Most of the money they've raised then really isn't spent on the technology. Firms like BlackRock that already have a consumer brand, they will be successful.

This will probably create a pivot for them; if they can't use their proprietary offerings in their digital advice platforms, that's okay.

The fee that they charge externally will just have to consist of something that allows them to be compensated for their service.

The bigger question with these robo offerings is what it is going to take for them to become successful offerings, whether they use proprietary products or not. I actually don't think it's about the technology.

The technology in and of itself is somewhat easy to build and replicate. The most successful robos are those that are going to have brand awareness or lead flow.

Have you ever seen the Kevin Costner movie, Field of Dreams? He clears his cornfield, builds a baseball diamond and at night all the baseball players come.

With the robo adviser offerings, firms need to understand that if they put that robo out there, it's not the field of dreams. People just don't show up and buy these portfolios. For firms to be successful, they have to figure out what are they going to do to create interest and drive traffic into those portfolios.

That's why you're seeing firms like Schwab and Vanguard become so outrageously successful with their online offerings - they already had the prospect flow to their websites.

So when I speak with firms, I acknowledge that robo advisers are something to talk about. But then I ask them, what are you doing today to monitor your Google analytics?

Because if you put a robo on your website but you only have 10 people a month visiting your site, you're not going to move the dial on any aspect of your business by putting a robo out there.

The underlying mechanics of what is involved in your robo, whether it is proprietary funds or not, I think they were just using them as an example.

They want that external fee that the client sees as low as possible. I think the DoL has done a good job of that.

They want us to be really obvious to the client what they are paying for advice.

Cerulli Associates just released research that showed brand awareness and trust are the deciding factors for many investors who are inundated with choice for investment management. Together they form the path of least resistance.

That's absolutely right. Part of that I believe has to do with the psychology of money.

At first it's like, 'Hey I have some money, and I enjoy playing around with it,' but it goes from being fun to being a responsibility, and then a burden over time. Because you become cautious, you say to yourself, 'I can't blow this; I have to go with a brand that I trust.'

It's really hard to get around that as a startup in financial services. To build that brand trust is very difficult.

But if a firm has lead flow coming to their website and they are aligned with a fund that they know and trust - and they're custodied with TD Ameritrade or Schwab - the consumer will have peace of mind.

Since we've been talking about the challenges facing independent robo advisers - what's your take on Wealthfront's recent leadership change?

The big challenge that Wealthfront has is that their big competitor Betterment has pivoted.

They've made their offering available inside a 401(k) plan. They've made it available to advisers. And Wealthfront really hasn't gotten out of that core B2C market. Where they have struggled is outside of Silicon Valley.

It's likely that most people haven't heard of Wealthfront. However, the new, and former CEO, is apparently quite well thought of in tech circles. And he should be able to get their offering positioned inside of a lot of different companies.

That could really change the brand trajectory, if they can position Wealthfront inside an HP or an Intel as an advice component.

Wealthfront can make cuts too. And with the original CEO back, they can return to their roots, or retool from scratch.

In the most recent round of fundraising, they were valued at $700 million. I don't know any other firm with $5 billion in assets that are valued anywhere remotely close to that.

So definitely, they are going to be under a lot of pressure. They don't have a lot of alliances. It's not like they can rely on a custodian to help them grow, network and build their business. They are very insular.

So it's hard for those firms to go out and grow beyond their own efforts at distribution. They've done so much themselves, as opposed to partnering and bringing in third parties to help them. That's one thing that could change.

They could choose to run their custody through [another firm].

Ultimately I think Wealthfront and Betterment would have been best suited to align with a custodian. Instead, the custodians have come out with their own digital offerings.

The custodians realized they could build the technology themselves, use their own brand, and be a lot more successful.

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