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Why robos are no-gos for large firms

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SAN FRANCISCO – Robos have not blazed the revolutionary path through wealth management that many had broadly anticipated. .

“Robo advice is not a panacea,” says Steven Dorval, who launched the saving and investing app Twine for John Hancock Financial Services. “It is a part of a puzzle. It has proven so far to be a feature, not a business.”

Rather than wholesale transformation of large firms’ business models, robos have instead helped them make incremental progress toward their digital goals, according to Dorval, the former head of innovation and digital advice for the insurer, and Drew Sievers, CEO of Harvest Savings & Wealth Technologies, at Financial Planning’s InVest West conference. “I think everybody has been off and wrong, including myself” in thinking robos would revolutionize large firms’ business models, Sievers says.

While the banks themselves might disagree, giants such as Bank of America, Chase and Wells Fargo have little to show for all their investment in the space, Sievers says.

During Dorval’s tenure at John Hancock, the insurer hired Sievers to provide white-label robo-technology. Rather than ushering in dramatic change, the firm later discovered it could best use pieces of those tools to assist with strategic portions of its business.

When it comes to Twine, the robo helped John Hancock understand the emerging space, but it did not significantly transform the business, Dorval says.

The intransigence of advisors also has blocked much growth of the robo space, according to Sievers.

In fact, Financial Planning’s latest Tech Survey found that just 11% of advisors said they offer a robo advice solution to their clients.

Part of the resistance is cultural, says Dorval, who now works as an industry consultant. .

“Some RIAs believe if it becomes too easy [to serve clients] it will hurt their ability to charge all the fees they want to charge,” he says. “Advisors are notoriously difficult to get them to change their business and their habits. … Inertia is a powerful force.”

It’s possible that robo technologies will take hold only after today’s seasoned advisors, largely in their fifties and sixties, retire. .

“They are trying to build a lifestyle business where they are making a nice living,” he says of this group. “Scale is sort of a non-factor.”

While small advisors and large firms prove resistant to any robo overhaul, new market entrants may be the next disrupters

New entrants make a splash

Neobanks, affiliated with savings apps like Acorns and Stash, have effectively leveraged robos to give consumers a way to save using small, automated deposits, Sievers says.

These new market entrants have succeeded because their small fees are attracting new, smaller clients, Sievers says.

“Those Acorns guys, they are getting tons of assets. Between them and [another app], Robinhood, we see a ton of activity,” Sievers says. “That, to me, is the area that is most interesting because they are not trying to replicate a brokerage relationship at all. They are doing something totally different, which is automated savings.”

“Neobanks have proven that it’s important and can be done well,” Dorval says.

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