DENVER – With more than 2,000 advisors in attendance at Schwab annual Impact conference, so-called robo advisors came under direct fire.

The long-term viability of the first wave of online automated RIAs was openly questioned at the conference’s general session by Walt Bettinger, Schwab’s president and CEO.

There is “no way” online advisory firms will replace advisors who work directly with clients, Bettinger asserted.

Robo advisors merely provide the “three easiest” services – asset allocation, automatic rebalancing and tax-loss harvesting – Bettinger maintained. Anyone who thought that type of offering would replace “all the other value-added services” of traditional advisors was “extraordinarely naïve,” he said.


What’s more, digital firms have only been in business during a bull market, Bettinger said. “Let’s see if they will hold up when the inevitable bear comes.” He added that online advisory firms are “economically inefficient,” and that he had never seen firms “charge basis points for software.”

Bettinger’s remarks came as he discussed the roll out of Schwab’s own digital product, Schwab Intelligent Portfolios. "What we’re doing in online advice ... is giving choices," he said. Advisors would be able to use a white label version of the digital product for mobile and web devices, he said, but did not specify when it would be rolled out.

While discussing the future of wealth management, Bettinger said “independent branches are something we are both testing and committed to,” because it would help the firm expand in new areas of the country.

At the same time, advisors have to be realistic about mounting pressure to lower prices, Bettinger warned. "The world is expecting more and better for less," he said.

A few minutes earlier, Bernie Clark, Schwab’s executive vice president of advisory services, quipped: "Robo bugs me -- the name."


That comment prompted instant reaction on Twitter: "Only seems to bug [Schwab] when they want to enter space -- been happy using it to attack," Brandon McFadden of online advisory firm Betterment tweeted.
Michael Kitces, Pinnacle Advisory Group’s director of planning research, countered: "It was ‘robo’ platforms who first said ‘we're cheaper because we eliminated expensive advisors!’ ”

Much of the general session was spent discussing what Clark referred to as Generation Now, the emerging investor class of young working adults.

He noted “our success is built on what is now an aging infrastructure. … The next generation doesn't want to hear about paper -- they want to hear about paperless.”

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