5 Ways Robo Advisors Will Change the Way Advisors Work


photo: veer

The following is a blog post by Raef Lee, Managing Director for the SEI Advisor Network. In addition to writing tips for advisors on technology, Raef is responsible for exploring new services and markets for the SEI Advisor Network. Connect with him on LinkedIn now or follow him on Twitter: @SEIRaefL.

Even the name Robo Advisor is derisive. It creates an image of uncaring, lack of humanity, and inflexibility. It is the term that is now being broadly used by advisors to describe the new breed of technical startups (upstarts) that directly connect technical-savvy investors with a suite of analytic tools that allow them to create their own financial plan or investment portfolio. A name this disparaging shows that advisors have some fear of this new model of financial advice.

There are three main types of Robo Advisor:

• A pure technology website, devoid of advisors, that allows investors to do everything themselves (examples include Motif Investing and Jemstep)

• Companies that include advisors who use technology only (the internet) to communicate with their clients (such as Personal Capital and Learnvest)

• Established financial service companies that have recently expanded their online advice offering (such as Vanguard and Edelman Online)


The fear, uncertainty, and doubt (FUD) have been fanned by all that has been written recently about these companies. The Wall Street Journal did a detailed piece focusing on the cost of robo-advisor services. Finovate has highlighted the venture funding behind these companies.

Whether you think that Robo Advisors are the latest fad that will go away, or a vision of how financial advice will be given in the future, they will definitely disrupt and change the way that advisors interact with their clients.

What it Means to You

In our research and discussions with advisors, these are the ways that robo-advisors are most likely to impact you:

1. Increased fee pressure. Robo Advisors offer lower fees for technology-centric services. The feeling goes that this could create lower fee expectations for younger investors.

2. A call for transparency. Investors will want more transparent and appropriate fee structures. The emerging Robo Advisor model is for a fixed fee for lower assets (say, under $100,000) and a basis point fee for larger assets (where the services provided are broader).

3. Pressure to accommodate a younger generation. Robo Advisors will reach a younger, technically savvy, growth-accumulating generation who may continue taking advice from the same source as they grow wealthier.

4. More technology. Investors may increasingly demand that they interact with the advisor in the way they choose. This will include web conferencing, the ability to schedule time with an advisor online, and intuitive ways of working on documents together.

5. Access to comparative data. Investors want information about how they are doing compared to their peers, and their advisor to present other views (both expert and non-expert). This allows investors to be better informed in the decision making of their financial plan.

Robo Advisor Overview

These are early days for Robo Advisor; the market is new, there are many entrants, and several business models are being tried. Here’s an example of the current landscape:

Note that:
• As more advisor time is used and there is more investment management (bottom left quadrant), the fees rise. When more technology is used (top two quadrants), the fees decrease.

• Nearly all these companies are private; most are venture-funded and were founded less than five years ago.

• The cost of the service ranges from 200 bps (Edelman Online for assets under $150K) to zero (SigFig). However, very different services are included in the costs. One of the most interesting aspects of these companies is that their fees are transparent and clearly identified on their websites.

What next?

So, should advisors be afraid? Robo Advisors will probably succeed in a new market which has largely been ignored by advisors – young, high-income, portfolio accumulators. Advisor sentiment to date has been, “Why go after someone with no money?” Technology-centric solutions may make this client segment profitable. Otherwise, advisors need not be nervous as long as they:

• Embrace the increased use of technology and social media that clients will increasingly expect in their advisor communication.

• Include younger advisors in succession planning who look like and connect with the next client generation.

For the latest industry trends and leading practices, check out eMoney Advisor’s range of helpful resources for professional financial advisors here.