“What can you add on top of what a robo-advisor does for free?” asked Kitces.

Don’t fear the technology or the robo-advisor, says Michael Kitces, director of wealth management for Pinnacle Advisory Group and co-founder of the XY Planning Network.

“Technology is not a threat, but an opportunity, if you build on that technology and add value,” Kitces told financial advisors in his presentation at the Inside ETFs 2017 conference underway in Hollywood, Florida.

Technology “is not replacing advisors; for most it’s replacing the back office … and not doing much to the front office.”

Robo technology makes it easy to onboard a client and fund accounts – in as little as 30 minutes – and “represents commoditization of basic asset allocation,” said Kitces. “If all you’re going to do is that [asset allocation], robos will do it cheaper.”

Kitces noted that more firms now “give away asset allocation for free” while charging an AUM fee for advice only. “What can you add on top of what a robo-advisor does for free?” asked Kitces.

For millennial clients, it’s helping them to pay down student loan debt, providing them advice on merging households or, in the case of divorce, separating them, not Social Security optimization, said Kitces. For the ophthalmologist, it might be advising them on how to sell their practice.

Consumers are willing to pay for advice, but not always “baby-boomer centric advice,” which many advisors have been giving, said Kitces, citing a Cerulli report about millennials’ willingness to pay for advice.

 “The value proposition of advisors is changing” in large part because consumers are not able to research investments like mutual funds on their own online and most active managers deliver poor performance, which has led to the popularity of passive funds, said Kitces.

“The Internet didn’t put advisors out of business. It became the foundation of their business.”

Technology, not robo-advisors per se, are the disruptive force in the financial advisory business, just like deregulation of brokers’ commissions was in the mid-1970s, said Kitces.

Technology is also transforming the big financial companies like Vanguard, which has hired more than 400 advisors to provide human advice along with digital help, and Merrill Lynch.

Pure standalone robo-advisors like Betterment and Wealthfront account for only 0.2% of the advisor market and they are not putting downward press on fees, said Kitces.

Rather, they are “transforming the 1% AUM fee,” changing the services that advisors need to provide in order to collect those fees. “For that you have to give them value,” said Kitces.

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