Page 14 - Investment Advisor May 2021

INDUSTRY INSIGHTS

By Tim Welsh

The Great Robo-Advisor Experiment

Continues

Once thought to be the end of human advisors, this technology

has instead helped the business focus and improve.

or a lot of us, the fact that the
modern robo-advisor move-
Fment is now in its 13th year is
remarkable.
It seems like it was just the other
day that these potential disrupters were
entering the scene to transform wealth
management and inflict significant dam-
age to the financial advisor space, just as
digital players had done to other tradi-
tional industries.
Backed by substantial investment
from venture capitalists, these tech
players drooled at the chance to rel-
egate human financial advisors and
legacy investment firms to the ranks
of taxi drivers, travel agents, retailers,
and music and video store operators to
capture significant market share in a
multitrillion-dollar industry. Back in 2008, two startups both Thus, it seemed only natural for the
But as we know, that’s not what hap- launched their aspirations for regime leaders of Wealthfront and Betterment
pened. Despite the real fear and loathing change: Wealthfront and Betterment, to bring that arrogant, disruptive ethos
from the wealth management industry followed by a handful of similar play- to their companies and prognosticate
when the first robots appeared, human ers, such as SigFig, Future Advisor, the death of the human financial advisor
advisors’ ultimate value was validated, Jemstep and others. Of course, the as an attention-getting PR ploy.
and humans remain at the forefront very first robo-type advisor, Financial In 2012, Betterment CEO Jon Stein
of the delivery of financial advisory Engines, was launched 25 years ago, wrote the infamous blog post “Financial
services. The world domination goal of in 1996. But Financial Engines was Advisors Are Bad for Your Wealth,” a
those VC-backed startups was not real- focused on the retirement plan spon- highly critical article with an accom-
ized; however, they did ignite change sor industry, not necessarily individual panying picture of a pig with a human
that continues to reverberate across investors directly, so we’ll start the head. This posturing of human advisors
wealth management. clock in 2008. as bad and technology as good ignited
In the late 2000s, disruptive consum- a great debate as to whether or not
HISTORY LESSON er technology was just starting to get human financial advisors were really
Now that we are more than a decade rolling with Apple’s introduction of the worth 1% fees.
into the movement, it’s a good time to iPhone in 2007. And we all know what Betterment and Wealthfront did not
look back and see what actually hap- happened from there, as this innovative prioritize making friends with the indus-
pened, what lessons were learned, and consumer device took hold and funda- try and invested instead in anti-advisor
where innovation in our sleepy corner of mentally altered how people accessed PR efforts in a bid to gain relevancy.
the financial services industry actually retail goods and services, forever chang- They did so as the early robo-advisors Adobe Stock
was accelerated for the good. ing those industries. were charging a quarter of an advisor’s

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