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Serious competition
Even as robo advice has begun to transform the wealth management industry, advisers have been relatively sanguine about how much it will impact their pricing and other aspects of their practice. Indeed, many don't see it as a much of threat. They should be a bit more concerned.

With deeper and wider adoption, pricing and advice for mass affluent will be reset and potentially pressured as the biggest hybrid offerings and big banks clash for that same client.

Further refinement will also come to the robo model as the idea that it’s a device to capture only young investors gives way to broader application and even further client segmentation.

As new digital tools and features incorporating advice elements enter the market more broadly, innovation will continue to pick away at the value offered by advisers.

The pace of development in the digital advice world far exceeds the number of investors actually using robo advisers right now. But the trend is growing.
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Pressure on pricing
Schwab's surprise hybrid robo offering release in December was bundled with aggressive pricing: fees set at 28 basis points with a $900 quarterly fee maximum. That's just under what Vanguard's Personal Adviser Services charges, and far less than Personal Capital's 85 basis points fee. Some observers wondered aloud if Schwab had set a price on advice for the industry to follow.
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An insurmountable lead?
Hybrids are expected to dominate the robo advice market and kill off self-service platforms. The current leader by a wide margin is Vanguard's Personal Advisor Services. Some observers suggest the runaway success of Vanguard's digital offering prompted Schwab to come out with its own hybrid platform, a year after it launched direct-to-retail and institutional digital platforms.
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A warning about hybrids
According to Corporate Insight's latest report on digital wealth management, "advisers that remain inflexible on price will find it difficult to attract young, emerging affluent investors, especially those who have experience working with much lower-cost hybrid brokerage firms or robo advisers." The report adds that not viewing hybrid robos "as major competitive challenges... may prove to be a costly oversight."
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How advisers are using robos
According to Financial Planning's latest tech survey, when asked what robo adviser they use, Betterment was the top answer among advisers, followed by Schwab. Only about 19% of advisers are currently using a digital advice platform, but that number will grow significantly over the next 24 months.
Fidelity Investments is considering having a global research base or two separate pools of clients and research in response to MiFID II, according to the firm’s head of global equities.
More choice and sophistication
Fidelity's release of its automated management platform, scheduled for early 2017, and the recent release of Vestmark's robo platform are just two examples of how robos are expanding in scope and sophistication. Fidelity's AMP is a goal-based platform powered by eMoney technology and some innovative Fidelity technology. Vestmark's platform expands the choice of investment products well beyond ETFs to include SMA and even UMA accounts.
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Watch the banks
Not to be left out of the robo race are banks. They will copy the approach set by Vanguard and Schwab and target existing clientele first for their own advice offerings. Their pursuit of the same mass affluent clients desired by wealth management firms will create digital advice's big clash. But an influx of retail banking clients from banks such as Wells Fargo or Citibank (both launching digital offerings) will also help digital advice expand faster too.
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Segmentation strategy
The idea of robos existing to serve only the young has been upended, as new research indicates the rich, the elderly and a wider range of wealth management clients are interested in digital offerings. Expect the emergence of advice platforms tailored for niche audiences, as increased diversity and demographics represent new opportunities for nimble wealth managers to pursue.
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Innovation erosion
Banks are reviving and redeploying PFM applications. Bank of America's new app release, for instance, will allow clients to set budgets and analyze spending. Such aspects of planning being grafted into digital tools eat away at the roles of advisers and only add to the trend of commoditized advice.
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AI automation creep
Advisers are in no danger of losing their jobs to computers, yet. But developers of AI and machine learning software are busy inserting themselves into financial advice for two reasons: The field lends itself to automation and digital delivery of services, and the trillions under management in the U.S. alone.
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