The rapidly growing realm of so-called robo advisors such as Wealthfront and Betterment is sure to change the financial advisory business in the future. Such firms now control more than $5 billion in assets under management and that could easily double in the coming year, according to some industry estimates.
We talked to a few financial advisors to gauge how they view the threat—and the promise—of robo advisors.
Tyler Mordy, president and co-chief investment officer, Hahn Investment Stewards, Toronto
Robo advisors are not a competitive threat to ETF strategists. You can view them as a threat to the wide wealth management industry as a whole. When you look at what they offer and where their strengths lie, it’s not yet in the portfolio management. Our value-add as ETF strategists as a team at Hahn is manufacturing portfolios. We’re in the business of active management and creating—at least in our realm—global macro ETF portfolios.
If you take that view as to where we add value and where robo advisors add value, it’s almost a completely different line of business. So robos specialize in client servicing and client experience, like the administrative front end of the business.
I think it’s great they’re using ETFs—at least most of them are. And it’s great that they’re doing it in a low-cost manner and delivering it to the end-client. All that is wonderful. We don’t disagree with it.
If you look at Canada, what’s different with the robos is that rather than “disrupting” the advisory business, they’re wanting to partner with the financial advisors, and actually have the financial advisors use their infrastructure and their technology to deliver their services to the end-client.
At the end of the day, what they have is modern portfolio theory, which is something we say we can improve upon. It’s a good place to start—you get diversification with low costs, but we think we can go one step further and deliver a better portfolio.
I think in the first downturn, similar to 2008, the spotlight is going to move from the actual delivery mechanism and infrastructure and the client servicing to the end-product, which is the actual portfolio. So, they lead “down the yellow brick,” and they do that in a cost-effective and easy fashion. But what is at the end of the yellow brick road? I’d say that the portfolios can be improved upon.