So-called robo-advisers look poised to shake up the U.S.
financial services industry. Dozens of recently launched online
providers, invariably backed by venture capital firms, offer
asset management and financial planning to investors who
arent looking for the personal touch that has always been
a hallmark of wealth management. The total U.S. assets managed
by this group, whose leaders include Betterment, FutureAdvisor
and Wealthfront, are nearing $17 billion, according to New
Yorkbased research firm Corporate Insight.
Proponents say online-only advisers will carve out a market
share like online discount brokerages did in the 1990s.
More-bearish observers regard financial advice and management
as something that the average investor is much less likely to
entrust to a software program than filing taxes or booking a
vacation. Recent strategic shifts by online firms appear to
support the view that they will have trouble turning a profit
without adding real, live humans to the mix.
Robo-advisers come in two flavors: those that manage assets
on a discretionary mandate and those that provide advice only,
often à la carte via financial planning and management
software supplemented by educational materials on investing in
stock and bond markets. Most of the former deploy passive
algorithmic portfolio strategies weighted to the risk profile
of an individual investor and use
These new market entrants have proven adept at gathering
assets from Internet-savvy Millennials, the generation born
between 1981 and 1996. But as investors
acquire wealth and take on family responsibilities, they need
services that only a flesh-and-blood adviser can provide,
contends Mark Ciucci, senior vice president of advice at United
Capital Financial Advisers.
We dont believe that investors
will stay with the robo-advisers for the long term, for the
simple reason that the closer they get to retirement and
realize that another market downturn could derail all of their
plans, they will seek advice that goes beyond simple portfolio
allocation, says Ciucci, whose Newport Beach,
Californiabased firm has 47 offices throughout the U.S.
and some $10 billion under management.
We believe investors
will work with a human adviser who can validate that they are
on the right track in their unique circumstance and not based
on some blanket concept like the 4 percent rule, he adds,
referring to a rule of thumb for the maximum that retirees
should withdraw each year to avoid depleting their savings.
Human advisers are valuable because they can look at an
investors situation holistically, like a doctor choosing
from a range of treatment options, Ciucci says.