Page 15 - Investment Advisor May 2021

fee for building portfolios based on a were fundamentally over, with just opening became the No. 1 new technol-
highly simplified risk tolerance profile, Wealthfront and Betterment surviving ogy investment advisors and the firms
placing investors in accompanying mod- as independent entities. that support them began making. The
els of low-cost ETFs and rebalancing In a further irony, both of these origi- industry still has quite a bit of catching
them along the way, all through automa- nal players also have pivoted to other up to do, but credit the robo-advisors’
tion and algorithms. venues outside of investing, most nota- digital movement for accelerating these
On the surface, this approach mim- bly to offer banking services. No longer needed upgrades.
icked what human advisors were competitive with “free” robo-advisors Another key change that the robos
doing. But the VC-backed robo-advi- from well-resourced and branded play- brought about was helping advisors
sors never did gain much better articulate the value
traction, and they were even- The world domination goal that they provide outside of
tually eclipsed by the very investment results in terms
incumbents they were trying of the VC-backed startups of behavioral finance issues,
to disrupt. hand-holding, empathy and
was not realized; however, being there for investors in
NEW CHALLENGES times of chaos and change.
“Wealthfront is really just they did ignite change that People are funny about
E-Trade with an expensive continues to reverberate money and want to talk to
coat of paint!” Aaron Klein, another person to help them
CEO of Riskalyze, famously across wealth management. with the very personal issues
tweeted. This simple state- around finances, achieving
ment put in perspective that lifelong goals while protect-
it was all really just a segmenta- ers such as Schwab and Fidelity, they ing their families. Indeed, today there
tion scheme, as early adopters of the needed to find other ways to make a are new professional designations that
robo-advisors were do-it-yourselfers living and have successfully done so by advisors can obtain around behavioral
who have always been attracted to harvesting cash. finance and related issues.
low-cost options, and not clients Robo-advisors continue to improve.
with significant wealth and more DIGITAL PATHWAY With the promise of AI, machine learn-
complex needs that human advisors But give credit where credit is due. ing and other predictive technologies,
have typically served. While the original robo-advisors ulti- their algorithms will be able to provide
Ultimately, there were no barri- mately haven’t been successful, they more tailored advice, further accelerat-
ers to entry, and industry incumbents did ignite a digital movement in wealth ing the commoditization of investing.
such as Schwab, Fidelity, Vanguard management. There is expected to be And human advisors will be able
and even Merrill Lynch were able to more than $1.3 trillion in robo-advisor to leverage these new tools and pro-
quickly launch similar functionality, managed accounts this year, with a com- vide another positive step in elevating
but with a devastating twist — they pound annual growth rate of more than humans from a low value-added role to
offered it “free.” Thus, the VC-backed 20% year over year. one of importance in their clients’ lives.
disrupters were ultimately disrupted Additionally, the elegant user inter- As a result, the great robo-advisor
by the incumbents they were trying faces and simplified, automatic account experiment continues and will be
to displace. opening that the robots introduced were played out in the ongoing digital trans-
This leadership transition to the total game-changers. Wealth manage- formation of the industry. Despite its
large online brands created a strate- ment technology had been lagging in complexities and reputation as slow-
gic shift for the early robo-advisors, modern, consumer applications; after moving, the wealth space is resilient and
as many of them pivoted to business- years of underinvestment, those gaps adaptive to change.
to-business platforms and actually were beginning to widen.
supporting advisors with back-office Clients were starting to notice as well, Timothy D. Welsh, CFP, is president, CEO and
automation, or were acquired by legacy adding to the pressure for firms and founder of Nexus Strategy, LLC, a consulting
Adobe Stock distribution play. Their days as direct- features. Most notably, client portals, firm to the wealth management industry. He can
advisors to deploy these innovative new
companies and asset managers as a
be reached at [email protected] or on
mobile applications and digital account
to-consumer investment platforms
Twitter @NexusStrategy.
MAY 2021 INVESTMENT ADVISOR 13