Virtual Advisors: The Robo Threat is Real

Dec 6, 2016

The robo revolution is maturing and ongoing. (I will use the affectionate name “robo” throughout this post, as that is how most people in our industry refer to robo-advisors.) It is surprising to me how the phrase still has legs when robos have morphed and splintered in so many different directions. In time, I think the term will vanish.

Historically, my point of view has been that robos are good for advisors. But in this post, for the first time, I’ll identify a robo threat for typical financial advisors.

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Key robo types


One of the things that can get advisor vendor companies all twisted up is telling the story from the vendor’s point of view. It is easy, and we are all to blame, because you spend all day trying to tell your story to advisors. However, for an advisor, it is much better for the vendor to put themselves in the shoes of the advisor. This is especially true for robos. There are so many robo articles out there, talking about different types of robos and the sliver of your business that they may help you with. In a recent white paper, we flipped it around and identified the different types of advisor as:

  • High-touch/Low-technology advisor: An advisor who does not rely on technology at all, but whose main value proposition is founded on the in-person meeting
  • Techno-advisor: An advisor who has in-person meetings with clients, but augments them with sophisticated technology, allowing their clients to interact with them in the way the client prefers
  • Virtual advisor: Advisors who never meet their clients, but there is a human communicating to their clients using technology
  • Robo-advisor: Online asset management, with no human involved

Robos are good for you

As a generalization, robos have been a good solution for investors with a modest portfolio that only require a simple approach to asset management: to manage their money at a modest cost. However, robos have had a greater impact on our industry than that, in two main ways:

1. A number of robos have pivoted and now provide platforms for advisors to service their clients.

These are called “institutional” robos, as opposed to “retail” robos, which are focused solely on investors. Institutional robos can be a good platform for an advisor, but typically, they only provide an effective solution for part of an advisor’s book of business. However, there are problems when an advisor wants to do advanced planning, advanced asset management or (in any way) integrate the institutional robo into their broader firm services. This leads to multiple ways of servicing segments of clients, with different software to support it, and few ways to move a client from one model to another.

2. Advisors have seen what the robos do well and have blatantly plagiarized, now use robo techniques.

Imitation is the sincerest form of flattery. These include:

  • Using a risk questionnaire as a method of client acquisition, rather than back-office paperwork
  • Having an intuitive and simple investor portal, or Personal Financial Managers (PFMs), as our industry likes to call them. They have aggregation built into them, allowing investors to see all of their net-worth
  • Improving the way that accounts are initially opened, so that an investor has immediate gratification of seeing an account opened and funded.
  • Allowing a client to set up their own appointments, through scheduling applications (such as

These changes have improved the way an advisor interacts with their clients across their entire book of business – not just one segment. These improvements are created by either existing vendors improving their offerings or by vendors partnering with some of the remaining robos to provide these services.

One of the areas that the trend is starting to take hold is in banking. Some banks are now adding robo features to their services. Here’s another example that came through as I was writing this post. It is interesting to note that in the UK, the banks were the train pushing the robo revolution; in the US, they are in the caboose.

Things have changed

So far in our story, everything is sunbeams and rainbows – everyone gains. Basically, with the advent of robos, the advice pie has become bigger and the players either have new or bigger slices. That is the story we’ve been telling – until now. Look at the following graph:


The graph outlines the asset under management of the top 5 robos. The bottom 3 are the purer robos – those that created the name and the movement. The top 2 are Vanguard Personal Advisor Services (VPAS) and Schwab Intelligent Portfolios (SIP). These are the big industry players who jumped on the robo bandwagon and, due to their brand and their existing client base, are able to cross-sell services without large acquisition costs.

Vanguard’s story is startling. They started VPAS quietly in 2013. They launched publicly in May 2015 and at the announcement, already had $17B in AUM! VPAS investors must have $50,000 of assets; they receive access to an advisor by phone/internet and are charged 30BPs for up to $5M of assets. VPAS advisors will advise the use of Vanguard funds/ETFs.

VPAS is the poster child for virtual advice. If you look at the VPAS marketing, it is squarely aimed at competing with a conventional advisor charging 100BPs. Vanguard has only just started, and they have approximately double the AUM of the next top 4 robos combined!

When talking to advisors, I am occasionally asked how an advisor competes with Vanguard mutual funds/ETFs when Vanguard’s fees are so low. Most advisors can make the case that having an advisor will increase your return – the advisor alpha. What is amusing is that Vanguard did some of the research highlighting advisor alpha – all before VPAS! Its finding was that an advisor can add up to 3% to a client’s return. But now that Vanguard is the advisor with VPAS, the differentiation is more nuanced.

What to do

How should a conventional advisor or a techno-advisor react to this threat? If the topic comes up with your clients, highlight what you bring to the table that a robo cannot:

  • A true advisor experience – a mixture of in-person meetings and virtual meetings, building the trust necessary for effective advice
  • A broader range of advisor investment services
  • Integration with key Centers of Influence, such as attorneys and lawyers

You are about more than just investments – something a robo can only aspire to.

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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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