5 Ways Robo-advisors Will Change the Way Advisors Work

Sep 26, 2013

The following is a guest 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 a technical-savvy investor 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) has 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 set an expectation for 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 for their advisor to present other views (both expert and non-expert). This allows the investor to be better informed in the decision making of their financial plan.

Robo-advisor overview

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

DTC Overview Graphic

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.

Across the pond

I talked to Ian McKenna who is the Lead Futurologist (I see a new title in my future) at the Finance & Technology Research Center (F&TRC) and writes for the influential British MoneyMarketing publication. He has researched the new companies in both the UK and the US. McKenna commented, “Only a handful of advice firms in the UK are embracing digital as a device delivery mechanism, due to the more restrictive regulatory environment. However, we are now tracking over 20 highly innovative next-generation advice services across America, which look destined to make high quality advice and guidance accessible to vast numbers of Americans who would previously have found such services unaffordable. ”

Dr Who

All this concern about robo-advisors brought me back to my favorite way of scaring myself growing up: watching Dr Who. I would hide behind the couch as the good doctor and his faithful sidekick would do battle with the latest threat to civilization. My most scary villain? The Cybermen. It looks like I haven’t progressed much…

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.


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Raef Lee

Raef Lee

Raef Lee is the technology contributor for Practically Speaking and also serves as a managing director for the SEI Advisor Network.

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  • Great overview of the landscape of “robo-advisors” and how they compare to one another.

    I think your “advisors need not be nervous” wrap up falls short on the call for better technology.

    With platforms like FutureAdvisor, Personal Capital, and Learnvest, end users can connect nearly all of their cash flow, debt, and investment accounts to one dashboard, typically compatible with any kind of electronic device with a screen.

    Do advisors have a similar all-in-one dashboard for their clients? Hardly, except for the 10,000 or so users of eMoney 360, perhaps.

    Everything else requires convoluted account aggregation, a third-party portfolio software program, some kind of portal or collaboration solution, and perhaps even a third-party mobile app developer.

    Unless advisors have comparable alternatives to the convenient aggregation offered by the robo advisors, end clients will view advisor technology as taking a step backwards.

    • JP Nicols

      I agree Bill.

    • Justin Wayne

      Completely agree on the point about consumers evaluating advisor technology and finding it lacking against many new consumer focused apps.  Many advisors don’t seem to worry about this as much now but it will become more important as advisors start focusing on Gen Y clients.

  • raeflee


    Good points. I agree
    that aggregation and the holistic view of a client is key both for the advisor
    and their clients.

    I would highlight
    two points:

    1/ I think the
    pure technology model to advice under-estimates the value of human
    interaction. As you know, a good advisor spends a lot of upfront time
    understanding family / personal dynamics before getting to the planning and the
    investments. Technology cannot do that.

    2/ As you say, I
    think Robo-advisor firms will change the expectation of investors. They will
    come to demand some of these technical ways of interacting with their advisors.
    Advisors will then push vendors to give them some of these capabilities. I
    think you are already seeing that with companies like eMoney and MoneyGuidePro
    who are focusing on advisor / client communication. This is all good for our

    That’s why I don’t
    think advisors need be nervous, as long as they are aware of these trends and incorporate the
    learnings into their practice.

    • JP Nicols

      Great comments, and I tend to agree, but in my view the changes by advisors and firms are coming MUCH slower than the pace of change in the rest of the world. Think about an unknown device known as the iPad reaching a user base of 50 million in just 18 months, and how the rise of consumer expectations with their technology has driven BYOD. 

      According to a recent CEB Tower Group survey only 1 in 10 advisors can see all of their clients’ assets and less than 1 in 4 can even see all of their clients’ assets across all of the silos within their own firm. 

      I especially like your point about under-estimating the value of human interaction, that will likely to be the differentiator for the top advisors for some time, and I too am encouraged by new technologies that help improve client/advisor interactions. What makes me even more nervous is how hard it is to change behaviors, it’s not just about management buying new technology, the advisors have to adopt it, and adopt in a way in which the clients will value.

      Especially so as client expectations also continue to evolve. Travel agents, music stores, book stores, brick and mortar electronics stores, etc. all bet that their customers would value their personalized service over online solutions. Investing and financial planning certainly can be complex topics, but the clients will ultimately decide how much the difference is worth.

      • raeflee

        You are aligned with Bill when you show the stats on how few advisors are using aggregation effectively. The Robo-advisors are doing so and typically for free.You also hit on a theme that John Anderson and I have a recurring conversation about. Good advisors are all about their clients and how to service them effectively. As a result the more time they can spend on that interaction the better.Therefore a lot of them do not have time to keep up with the ever changing world of technology. Now some of them are thwarted-techies and therefore do follow technology closely as a hobby, but it is a minority.If you go to the advisor technology oriented conferences, like T3, you realize that there are a lot of vendors talking to each other, and a low percentage of advisors. This is probably how it should be as why should an advisor need to fill up precious brain space with bits and bytes?I think it is up to the technology vendors to change the conversation into advisor-business language. In this area, we should be hitting on themes such as holistic investor net-worth reporting and allowing investors to choose the way that they interact with their advisors. This way advisors need not be forced into having to become techies, but will adopt the techniques more quickly.Thank you for your insights…

        • Yes, the good advisors focus more on strengthening relationships with their clients. We’ve come a long way from the cold-calling and transaction based practice in he 1980s and a portion of the 1990s. Financial planning has blossomed and stock jockeys are part of the history lesson I guess. Things change from generation to generation right? It is interesting to see the Gen Y and X so much more comfortable with technology and not so concerned with meeting an advisor eyeball to eyeball. There is plenty of business to go around for everyone I believe. Let’s see what happens in the next Bear market. That’s when the human touch, explanation of what to do next and that meaningful “hand-holding” to calm the nerves DOES make a difference. Ah, the adventures continue in our great industry!
          Neil Wood
          author of The Best Practices of Successful Financial Advisors

  • Timothy Shanahan

    We see these as resources that advisers can leverage – along the lines of working smarter instead of harder. Good example is FolioFN which we use to create model portfolios primarily of ETFs and securities. Folio provides the technology and our firm gets our usual advisory fee. The client benefits from lowers costs of using ETFs and a very low trading/custody fee.

  • Silvan Schumacher

    Great insights and overview!

    Rockfox is currently developing a solution for the European market: http://rockfox.ovh We are still prototyping and hope to receive valuable feedback on it! :)



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