Why The Robo-Advisers Are Not Your Overlords

When I read Rachael Revesz’s  interview with Nicholas Round, ”Robo-Advisers Will Put A Lot Of People Out Of Business,” one thing popped into my head (a la NEWMAN! from Seinfeld). I could only think “HOUGAN!” 

In our keynote presentation at Inside ETFs Europe, ETF.com CEO Matt Hougan implied that advisers were going to get steamrolled by robo-advisers. I had to dig through the notes from our presentation.  And I quote, from Mr. Hougan:

Last year, we came here to tell you that a series of new technologies and innovations like the  ETF had changed the world for the better; that a new, glorious age of investing was dawning. This year, we're here to tell you that there's a new ominous force on the horizon making use of these new technologies to potentially crush your business. Or in short, welcome to your new robot overlords."

New Robot Overlord?

Matt then went on to eloquently introduce to the Amsterdam audience the “new robot overlord”: Jon Stein, founder of Betterment, one of two very-well-funded and successful “robo advisers” in the U.S..Obviously the point struck home with Nicholas and many advisers at the event, as well it should have. 

The robos are still negligibly tiny in the big picture of investing to date, even in the US, and there’s only one real (considerably smaller, but real) player the the European market – Nutmeg. However – they are the future, and for a generation that doesn’t even know what a travel agency office looks like, the threat is real.

Despite all the doom and gloom from Mr. Hougan,  my own view is that the need for sound financial advice, coupled with a sound client relationship, will always retain value. But the competition and simple high quality and low cost delivery of the robo advisers will force advisers to be better … better in terms of providing lower cost diversification overlaid onto that sound financial planning.

Better Pay Attention

As an adviser, you should be paying attention to the shifting environment. Smart advisers are going to use the trends to improve and perhaps even simplify their processes (Betterment offers white label services to advisers in the US, for example), but above all, the key is going to be focusing on truly knowing their clients and building the sort of deep client relationships that doctors have with their patients.