Invasion of the 500-pound Robots By: Gabriel PotterMBA, AIFA® 2019.10.01

Is the title excessive?  Maybe for an ordinary person off the street, it is over-the-top.  For a retail-based financial adviser, the title still might feel like an understatement.

Over the past few decades, Americans have shown that they can be tempted by the low-cost, turnkey approach – even if it’s automatic and robotic - over the more-expensive, human-driven, customized approach.  Stockbrokers were among the first casualties of the internet’s proliferation as low cost trading options through E-Trade, TD Ameritrade took market share away from traditional brick-and-mortar clearinghouses.  Low-cost, index-based investments have been rapidly taking market share from active investment managers for the past decade. 

Despite the commodification of the financial industry, the realm of advice and consulting – which still relied on information collection, synthesis, and analysis – was mostly untouched.  Sure, there were robo-advisors, but not everybody trusted computer software to automate their decisions.  Robo-advisers lacked the trust necessary to really take a bite out of the market, but that trust might be earned if there was a trusted brand behind it.

Last week, Vanguard launched its pilot program for robo-advisors – designed to shut out human financial consultants.  Given the consistency of messaging between Vanguard’s low-cost investments and its new automated advice modeling software, this may be just the boost necessary to tip public consciousness over to the new regime.  Of course, robo-advisers are not going to work out for everyone – real life is more complicated than what fits in a computer program – but life might get tougher for traditional financial advisors since the new system could take away a lot of the easy-lifting from their existing book of clients.

 

 

 

 

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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