For a lot of us, the fact that the modern robo-advisor move- ment is now in its 13th year isremarkable.
It seems like it was just the otherday that these potential disrupters wereentering the scene to transform wealthmanagement and inflict significant damage to the financial advisor space, just asdigital players had done to other traditional industries.
Backed by substantial investmentfrom venture capitalists, these techplayers drooled at the chance to relegate human financial advisors andlegacy investment firms to the ranksof taxi drivers, travel agents, retailers,and music and video store operators tocapture significant market share in amultitrillion-dollar industry.
But as we know, that’s not what happened. Despite the real fear and loathingfrom the wealth management industrywhen the first robots appeared, humanadvisors’ ultimate value was validated,and humans remain at the forefrontof the delivery of financial advisoryservices. The world domination goal ofthose VC-backed startups was not realized; however, they did ignite changethat continues to reverberate acrosswealth management.
Now that we are more than a decadeinto the movement, it’s a good time tolook back and see what actually happened, what lessons were learned, andwhere innovation in our sleepy corner ofthe financial services industry actuallywas accelerated for the good.
Back in 2008, two startups bothlaunched their aspirations for regimechange: Wealthfront and Betterment,followed by a handful of similar players, such as SigFig, Future Advisor,Jemstep and others. Of course, thevery first robo-type advisor, FinancialEngines, was launched 25 years ago,in 1996. But Financial Engines wasfocused on the retirement plan sponsor industry, not necessarily individualinvestors directly, so we’ll start theclock in 2008.
In the late 2000s, disruptive consumer technology was just starting to getrolling with Apple’s introduction of theiPhone in 2007. And we all know whathappened from there, as this innovativeconsumer device took hold and fundamentally altered how people accessedretail goods and services, forever changing those industries.
Thus, it seemed only natural for theleaders of Wealthfront and Bettermentto bring that arrogant, disruptive ethosto their companies and prognosticatethe death of the human financial advisoras an attention-getting PR ploy.
In 2012, Betterment CEO Jon Steinwrote the infamous blog post “FinancialAdvisors Are Bad for Your Wealth,” ahighly critical article with an accompanying picture of a pig with a humanhead. This posturing of human advisorsas bad and technology as good igniteda great debate as to whether or nothuman financial advisors were reallyworth 1% fees.
Betterment and Wealthfront did notprioritize making friends with the industry and invested instead in anti-advisorPR efforts in a bid to gain relevancy.They did so as the early robo-advisorswere charging a quarter of an advisor’s
By Tim Welsh
The Great Robo-Advisor Experiment
Once thought to be the end of human advisors, this technology
has instead helped the business focus and improve.