Strange Bedfellows: Advisors & Robos

November 04, 2015

The Need For Scale
To Betterment, partnerships with advisors such as Bera are a great way to more quickly scale their business. Robos may be the cool kids on the block right now, but they too have to spend time and marketing effort to attract clients like any other RIA. And that’s not an easy task.

Strange Bedfellows Robos and Advisors

“Partnerships enable as many people as possible to use our platform,” said Joe Ziemer, business development and communications head at Betterment. “One of the benefits is scale.”

Scale to a pure-robo is critical if you consider that the primary target audience in the robo space—the younger generation of investors—isn’t exactly where the bulk of the wealth is.

As Michael Kitces, partner and director of research for Pinnacle Advisory Group, who publishes the financial planning industry blog Nerd’s Eye View puts it, “Technology is not unique to millennials at all. Robos went after millennials because if they went after baby boomers, they’d go against 1,000 other firms that are already competing in the space.”

“There’s not that much competition in millennials because accounts are so small, so it’s not really that profitable,” Kitces said. “They need scale.”

There are already 200 advisors partnering with Betterment’s institutional platform, which is barely 1 year old.

And the path to scale has been an interesting one to the extent that each of these advisor partners has found their own versions of a perfect balance between the human and robo worlds.

Different Uses Of A Robo
“There are larger firms that use this as a segmentation strategy that allows them to take clients with smaller assets,” Ziemer said. “There are also firms that use this for lifestyle implementation—people who want the high-tech experience. And there are those who are using it for everything, putting all clients in it.”

If nothing else, some advisors have even found that joining forces with a robo is a great way to recruit new advisor talent to their firms.

“This is an aging industry,” Ziemer said. “The average age of advisors today is 54 or 55, and we are at record lows of people entering the space. Some advisors are telling us that to attract young good talent, good technology makes sense.”

Creating Your Own Solution
Many advisors are going a different route. They’re looking to replicate the user-friendly, low-cost experience robos are known to provide in-house. This means developing their own types of digital investment solutions to make online-type advice and online investing a reality in their own shops.

Atlanta-based Wela Strategies, for instance, did its homework, raised some capital and upgraded its offering to a new digital unit designed to tap in to this growing demand for tech-savvy solutions. The result was the creation of

“You can log in and use Wela for free, aggregate your accounts, digest our content, use our tools, etc., but if you want to invest with us, it’s the same fee schedule [as before],” Mitch Reiner, managing partner at Wela Strategies, said. Fees here range from 0.75% to 1% depending on the account size. The larger the account, the smaller the fee, and anything above $1 million is on a per-case basis, according to the company’s website.

To Reiner, creating a solution instead of partnering up with a robo made sense given the market he serves. In Atlanta and surrounding areas, he says, few clients, if any, have heard of Betterment or Wealthfront—the big robos today. Meanwhile, Reiner, and Wela, have a strong following—and even a radio presence—in the region.

“There was an opportunity here for us,” he said.

Strange Bedfellows Robos and Advisors

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