RIAs Harness Personal Touch and Tech to Fight Robo-Advisers

As automated platforms gain share, financial advisers compete by adapting new software to traditional hands-on services.


Disrupted by technological innovations, entire industries, from horse-drawn carriages to audiocassette tapes, have collapsed, a process 20th century economist Joseph Schumpeter famously called “creative destruction.” Now one breed of financial professional wonders if it’s next to face extinction: the registered investment adviser.

Recognizing that the wave of so-called robo-advisers — automated investing platforms that use algorithms to construct portfolios based on client goals and risk preferences — is a threat to the profession, RIAs have tried to harness technology to compete with these Silicon Valley–born service providers, as well as with more traditional advisers. In addition to allowing them to launch their own automated services, new software for portfolio accounting and management, risk management and marketing can help advisers broaden their reach, streamline their services and improve the client experience.

No firm exemplifies this paradigm shift better than Charles Schwab Corp. The San Francisco–based discount brokerage launched its own robo-adviser, Schwab Intelligent Portfolios, in March and then opened the platform up for customization by independent advisers through Schwab Institutional Intelligent Portfolios in June.

“There was a fair amount of concern a year or two ago, when the concept of the robo-adviser was first being thrown around, but that has done a 180,” says Bernard Clark, executive vice president and head of Schwab Advisor Services. “From our advisers, we’re seeing an awful lot of embracing of this concept.”

Between April and December of last year, assets under management of the top 11 robo-advisers swelled some 65 percent, to $19 billion, according to a report by Manhattan-based financial research firm Corporate Insight. This growth doesn’t appear to be slowing. Chicago-based consultancy A.T. Kearney predicts that robo-advisers will break the $2 trillion mark in five years.

With Schwab Intelligent Portfolios, retail investors log on through a computer or mobile device and receive recommendations for investing in 54 different exchange-traded funds across 27 asset classes based on their stated goals, risk tolerance and time horizon. Institutional Intelligent Portfolios, on the other hand, provides a platform by which advisers can choose from more than 450 ETFs to construct their own set of portfolios; clients can then interact with those portfolios digitally.

Although technology will change how advisers work with investors, Clark insists that RIAs can preserve the personal connection with clients that differentiates them from automated investment services. “Now the adviser crafts a relationship around the electronic offering,” he explains. “They’ll probably want to have periodic meetings, but they don’t have to be in person.” Crafting a portfolio may be a large part of the relationship, Clark adds, but it’s more effective with the estate planning and life coaching that only a human adviser can provide.

Aaron Klein, chief executive and co-founder of risk software developer Riskalyze, agrees with Clark on the importance of the human relationship. “One of the biggest problems with investing is that we sabotage ourselves,” says Klein, who emphasizes the adviser’s role as a behavioral coach, protecting clients from making rash decisions in bull and bear markets.

Founded in 2011, Riskalyze created a questionnaire that produces what it calls a Risk Number on a scale of 1 to 99 that corresponds to the level of downside risk a person will tolerate over a six-month period. “Some people say it’s the ‘sleep number’ of risk,” Klein jokes. After administering the test, advisers can then use the Auburn, California–based company’s platform to calculate risk numbers for a set of portfolios, which they can rank according to results of their client’s questionnaire. Riskalyze’s 10,000 users manage more than $90 billion on the company’s platform.

In Klein’s view, risk-centric technology strengthens relationships between RIAs and their clients by reducing the fear that the adviser is making risky bets in hopes that big payouts will garner more business. “When you stop touting returns and start focusing on risk and how you design portfolios for your client, that builds a huge amount of trust,” he insists.

Building trust in the digital age requires the ability to tailor services to individual clients on a larger scale, says Eric Clarke, CEO and founder of Orion Advisor Services, a portfolio accounting software provider. “The most important aspect of technology for RIAs is mass customization,” says Clarke, whose software is used by advisers managing a total of $225 billion in assets. Orion builds mobile apps and web portals, in which it integrates the RIA firms’ existing financial planning systems. The Omaha, Nebraska–based company also builds in document-sharing and storage features and data aggregation capabilities.

Orion helps advisers tackle the mass customization problem by giving them tools to create personalized digital video statements. RIAs record a generic video, and then information from the client’s account is displayed on a screen at different intervals. To further personalize the experience, Orion will integrate instant-messaging services and video-calling capabilities into clients’ web sites to help advisers build relationships with their customers and improve users’ experience.

“Firms that aren’t focused on improving client experience are going to struggle,” Clarke predicts. He sees the industry being shaped not by the robo-advisers or other technologies but by demand for easier, more convenient access to investment advice. Automated advisers have excelled in this area by allowing users to sign up easily online and log in any time to access their portfolios. “The other thing I think robos have done a great job at is advertising online,” Clarke adds. “I think advisers should be looking at social media platforms and figuring out different niches that they can focus in on to bring more prospects to their web site.”

As RIAs and robo-advisers broaden their reach by rolling out new electronic offerings, online and social media marketing and related technologies become all the more important. To address this need, marketing and design firms like Blu Giant have sprung up to serve the investment advisory industry. “The robos that are going to grow and be a threat are the ones that drive traffic to their web site,” says Blu Giant’s CEO, Brett Clarke, citing Schwab Intelligent Portfolios as a fast-growing service spurred by effective advertising. “So, the biggest thing for these robos and for advisers alike is to drive traffic to their web site.” He points to ad campaigns targeting specific demographics, social media marketing and landing pages that simplify the sign-up process as key elements of a successful strategy. “If advisers can do that, there’s no reason they shouldn’t be able to grow right alongside the robo,” Clarke says.

Established in 2012, the Omaha-based agency works with advisers to craft a brand identity to build a web site around. “If you’re going to continue to exist as an adviser, you’ve got to be able to tell me what you bring to the equation,” says Blu Giant’s creative director, Christopher Norton. “What are you giving me that the technology by itself can’t?” To answer this question, Blu Giant attempts to weave a unique story around each adviser’s approach and personality by developing customized videos, animations and interactive components for client sites.

With new technological developments allowing advisers to reach and build personal relationships with a wider customer base, Riskalyze’s Klein doesn’t think RIA firms should focus on trying to imitate robo-advisers. Instead, he argues they should leverage technology to showcase their unique skills and allow them more time to focus on aspects of the industry that are not easily automated. “In the race to depersonalize your services, the guys with venture capital funding will win,” warns Klein.