The top 11 robo advisors now manage about $16 billion, according to Aite Group. While this is a mere pittance compared to the $10 trillion-plus in total retail assets, robos are forcing both investors and financial advisors to review the advisor value proposition.

Now that investors can access automated passive investing at dirt cheap prices, how will that affect financial advisors who charge heftier fees for their advice?

When ETFs rolled out to retail investors twenty years ago, they were also a challenge to the advisor model. Initially they were perceived as a strategy for do-it yourself investors who wanted to bypass Wall Street.

But since ETFs are financial instruments, advisors quickly co-opted that business model threat by charging an advisory fee to run ETF portfolios.  With that, ETFs became just another component of the advisor tool box.

However, robo advisors which are automated don't as easily lend themselves to the same type of advisor co-opting.

In my view, the robo invasion of the street will serve as a catalyst for advisors to continue to do what they have been doing for years: provide their clients with higher and more broad-based levels of customized service.

Managing investments is only one manner in which financial advisors prove their worth. These days, advisors earn their keep by helping high-net-worth investors solve a variety of complex financial problems.

These can range from planning for retirement or college savings to estate and tax planning. Some advisors set up cash flow and budgeting programs and advise clients on intergenerational wealth transfer strategies. Others help client establish charitable giving and business succession planning.

Advisor coach and consultant Michael Silver of Focus Partners puts it this way: "The days of just working within the investment silo are fading rapidly. In order to build sticky, long-term relationships, advisors need to expand their platform of solutions to include insurance, lending, alternatives, in-depth financial planning, and many other things."


There's no denying the appeal of robos -- for the uninitiated, they are easy to access, they have low entry requirements, and they seemingly have low fees, charging anywhere from 25 to 50 basis points. Some even do tax-loss harvesting.

Schwab recently rolled out its Intelligent Portfolio and garnered $500 million within three weeks. Other custodians such as Fidelity and TD Ameritrade have announced alliances with third party robo providers. It seems not a day goes by when a firm isn't announcing the launch of a robo service.

Still, some question the efficacy of these automated programs and their use of algorithms to select and allocate investments. They argue that diversifying the assets of smaller accounts amongst six or more ETFs -- as Wealthfront and Betterment do -- is overkill and is unlikely to generate meaningful returns.

Robos can't begin to match the broad-based value that advisors deliver to their clients. Many advisors, far from feeling threatened, say that merely a providing a passive investment program just isn't worth all that much.

"Based on the value that robos provide -- if anything, their fees are too high," says Erik Mosholt, chief investment officer of KB Financial Partners, an RIA based in Princeton, N.J.

But according to Morningstar, financial advisors can add the equivalent of 1.82% in additional annual returns -- which can add up over the course of a lifetime of saving.

Michael Kitces, partner and director of research at Pinnacle Advisory Group, aptly describes the evolution of advisor value.

He describes how online discount brokers first caused the demise of order-taking stockbrokers who worked for Wall Street brokerage firms. Once customers could enter their own orders, there was no longer any need to call stockbrokers for price quotes or to execute orders. This prompted advisors to add mutual fund selection to their toolkit.

As research services like Morningstar enabled investors to make their own mutual fund selections, Kitces recounts how advisors reinvented themselves as builders of diversified asset allocated portfolios.

Now that robo advisors are offering asset allocated portfolios on the cheap, advisors will find new ways to add value.

One version of the latest evolution of the advisor value is already upon us. Joe Duran of United Capital has dropped the phrase "wealth manager" -- which many people feel is overused and no longer meaningful. Instead, he's recasting his $13 billion company as a "financial life manager."

As innovations like robos incentivize advisors to bolster their skills and more sharply customize their value proposition, both advisors themselves and their clients can only benefit.

Mark Elzweig is president of wirehouse and RIA executive recruiting firm Mark Elzweig Company.

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