What's a robo-advisor?

Those who haven’t, he said, should ask themselves, “What are the technology solutions that you think you’re missing? Where are the things that you’re doing on a repetitive basis that really aren’t adding value to the client and you could use technology to scale?”

He stressed that firms in any industry that want to build sustainable, long-term businesses “recognize that scale matters, and in order to effectively scale, adopting technology can and should allow you to have a better engagement and a better experience with your client. It should also allow you to be much more efficient in your practice and therefore be able to solve a lot more on a more manageable level of cost because you’re using technology as a disintermediator.”

Another perception of robo-advice technology—that advisors are using it to service their lower-net-worth and less profitable clients—isn’t supported by Jefferson National’s survey.

It found that more than half of advisors who have implemented those tools are using them on their $1 million clients, and 20 percent are using them with clients who have over $10 million in investable assets.

The age of the client is irrelevant, too. Forty-nine percent of advisors said they use robo-tools with their boomer clients; the same percentage use them with millennial clients. Advisors realize the value they bring to their clients is not just in investment management, Caplan said. “My guess is that if you have a client with high AUM, why not spend the time helping them plan and structure to optimize their returns? Why not spend the time to make sure you’re engaging and deepening the relationship with them and use robo-advisory and the digital experience around execution?”

He believes advisors are using robo-tools primarily for “pure tactical asset allocation. In the end, I think there is a subset of advisors, and it may eventually become a larger component, who have a view that the actual investment management part of their practice is becoming more commoditized.”

Caplan said that even the word “robo-advisor” is misleading. “It makes it sound like you’re substituting an advisor with technology, and I just don’t think that’s doable,” he said describing his experience at E-Trade, where he previously was CEO. “In the end, as you began to build and aggregate wealth and you were trying to plan for your future around a goal, you needed some intersection of technology and a digital experience with human capital. Nothing can supplant that.” 

That means that what robo-advisors have really done for the clients’ experience is to highlight that it’s not just about the advice but the experience. “It’s ‘How do you have a great, slick interface in the front end? Is it really powerful? What are the tools around asking questions from a planning perspective that are basic and simple? How do you encourage millennials to feel comfortable about adopting this technology and doing it in a way where you meet their relatively conservative behaviors?’” he said.

“In some respects it’s shocking to me that the leaders in the world of robo, that the whole construct of robo-advice wasn’t led by firms like Schwab and Fidelity and E-Trade, because in some ways, that’s really what they were doing,” Caplan said. “All of us realized that as you had an underlying client who was in the mass affluent category and they were beginning to build wealth, they needed guided advice. If you didn’t figure out how to build human capital for them to interact with, whether it was a relationship manager on the phone or someone they could walk in and talk to at a branch, eventually you were going to lose them as a client.”