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Advisory Firms Enter Robo Race

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David Edwards, president of Heron Financial Group Wealth Advisors, is launching a pilot project to add a web-based robo-advisor business to his firm. To be called, the digital advice platform will offer Betterment Institutional’s robo-investment software along with eMoney Advisor’s new emX Select financial-planning tools.

“We’ve got 30-year-olds who want to be involved in this. Every 30-year-old we’ve talked to wants to do this tomorrow,” Edwards said while attending the Technology Tools for Today (T3) conference in Dallas, which gave advisors their first look at emX’s dashboard.

Considering that Fidelity Investments announced earlier this month that it is acquiring eMoney Advisor, it’s a sign of the times that Heron is moving forward with a robo offering — even though some advisors remain wary of the robo trend and are resistant to adding such digital technology to their practices.

However, Michael Kitces, director of research for the Pinnacle Advisory Group and author of the Nerd’s Eye View blog, said it’s no surprise that robo platforms are courting advisors who want advanced technology to do automated allocation for clients.

“If they were making money rain from the heavens going direct to consumer, you would not see about three-quarters of the robo-advisors pivoting to advisors,” Kitces said. “There’s already a lack of trust in the asset management industry, and investors aren’t going to hand you money just because you have an automated website.”

Kitces added that the emX dashboard was the most impressive technology he saw at this year’s T3 conference.

Edwards, meanwhile, believes that the “holy grail” of wealth advisors is to put together a collection of best-of-breed applications that synchronize data and offer new clients a starting point for wealth management.

Heron Financial Group’s minimum is $1 million in investable assets before the firm will take on a new client. But, which is scheduled for a soft launch on March 31, is designed to attract the children of current clients — younger people with high income and no real assets, Edwards said.

“They’re earning $250,000 building websites annually but still paying off $80,000 in debt,” Edwards said. “If I tell them, ‘Come back to me when you have $1 million or when you inherit $1 million from your parents,’ I’ll never see them again.”

The investment so far in is $40,000 for the new website’s technology and staffing, or 20% of the larger firm’s annual marketing budget of $200,000. Edwards doesn’t expect to make much more than $5,000 off the platform in its first year.

Edwards may be on the early side among advisors who will step forward with a digital advice platform, but judging from the packed crowd that attended a T3 panel on robo-advisors, he is far from alone in wanting to see what the technology can do for his business.

Sitting on the T3 panel were executives closely involved with some of the bigger robo-advisor platforms: Steve Lockshin, a stakeholder in Betterment Institutional, which is an offshoot of the retail version of Betterment for the consumer market; David Benskin, founder and chief executive of Wealth Access Inc., Simon Roy, president of Jemstep Inc.; and Juney Ham, co-founder and president of Upside.

As much as advisors are wary yet interested in learning about how to incorporate digital platforms into their practices, these four men all served on the T3 panel because their firms are actively courting advisors. Betterment Institutional is geared specifically to advisors, Wealth Access is a robo platform for wealth managers and their high-net-worth clients, Jemstep has a growing business for advisor clients, and Upside proposes to marry digital investment management with the human touch that traditional advisors offer to clients. Lockshin argued that Betterment provides low-cost participation in the increasingly commoditized market of portfolio investment. Plus, it helps advisors resolve repetitive back-office chores such as billing so they can focus on helping clients achieve financial goals, he said.

“It’s about the client’s time with the advisor. The investment piece is ancillary,” he said.

When asked if they are thinking about adopting a robo platform, about 50 advisors in the T3 audience raised their hands. At the same time, judging from questions some advisors asked the panelists, they are still uncertain about how to get started.

Ham responded that many advisory firms create a completely separate brand, which helps them honor their fiduciary responsibilities to both sides of the business. He added that bringing the robo technology into an advisory practice usually involves an implementation call with an onboarding consultant. Some advisory firms like to designate one or two people within the practice to manage their digital business, Ham said.

Before advisory firms do get started on adopting a robo platform, Roy urged them first to discard the “robo” term altogether and view digital technology as an essential part of their business.

“The term robo-advisor should become obsolete as soon as possible,” Roy said. “First because it’s pejorative, and additionally because technology is an enabling complement to an advisory firm.”

— Check out If You Can’t Beat Robo-Advisors, Become One on ThinkAdvisor.


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