Robo-Advisors a Potential Threat but Coexistence Is Possible: Survey

Advisors are ‘not sure if robo-advisors are their enemy, friend or frenemy,’ says Todd Clarke, CEO of CLS Investments

Todd Clarke, right, with his brother Eric. Todd Clarke, right, with his brother Eric.

Financial advisors are confused about robo-advisors. “They’re not sure if robo-advisors are their enemy, friend or frenemy,” says Todd Clarke, CEO of CLS Investments, a $6 billion third-party money manager that partners with thousands of advisors.

Clarke was talking about the results of his firm’s survey of 134 independent advisors designed to gauge their view of the growing robo-advisor market. As of year-end 2014, robo-advisors had about $19 billion worth of assets under management, a fraction of the roughly $2.4 trillion managed by RIAs.

Close to 80% of the survey’s respondents said they perceived robo-advisors as a “potential” or “significant” threat to their business, but 97% said they believed that human advisors and robo-advisors could coexist. More specifically 34% said robo-advisors could help their practice while 21% said it could hinder it. Forty-five percent saw “no discernible impact.”

Asked whether they would trust a robo-advisor as a partner to help manage and oversee assets, 60% of advisors said yes, and 40% said no.

Clarke says the growing presence of robo-advisors will be the catalyst that pushes advisors into embracing more technology in their practices, but he doesn’t expect robo-advisors will replace financial advisors. Advisors will still do financial planning, for example, but more will do that online rather than in person, sitting at a desk across from their client, says Clarke. And just like TurboTax and other online tax software didn’t replace accountants, robo-advisors won’t replace human financial advisors, says Clarke.

He expects some advisors will resist the change, especially those planning to retire in the next five years or so, but advisors who want to stay in the business will be forced to embrace it, working with a technology partner inside or outside their firm.

To those who chafe at the change, Clarke says he asks them if their clients bank online or shop online so they realize that they too have to update their services.

Financial giants like Schwab and Vanguard are doing that big-time, offering their own robo-advisor services, and Orion Advisor Services, which provides portfolio accounting services for advisors, just announced a partnerhips with Jemstep to offer robo-technology solutions to advisors. But other firms like Raymond James are taking a different approach. Raymond James President Scott Curtis told ThinkAdvisor at this week’s Raymond James Advisor conference that the firm has no plans to pursue a robo-offering. Instead, he said, the firm will continue to support its advisors with the technology and services they need to succeed.

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