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Why RBC Wealth Is Saying ‘Hold the Robo’

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RBC Wealth Management says it wants to switch its robo plans from “go” to “wait and see.”

“The FutureAdvisor project [with BlackRock] is on hold so that we may address other priorities, specifically, DOL fiduciary standard-related work,” the firm said in a statement on Wednesday.

But as news about RBC’s move spreads across the industry, at least one consultant is asking which firm will be next to change its approach. (The RBC development was first reported by Financial Planning.)

“Stay tuned for more on the strategically canceled” or put-on-hold robos, said Tim Welsh, head of Nexus Strategy, in an interview. The consultant expects plenty more robo plans to go “back to the drawing board.”

“Absolutely, this will happen as more get rolled out [or near rollout]. We’ll see some in the first year that will show results that are not what firms had planned or expected. Dozens of firms went into this with a herd mentality vs. a clear strategy.”

Many broker-dealers felt they needed to add a robo channel “right away like everyone else,” Welsh says. “But it’s really a strategic question: Why do you think you need to do it? Why do you really have to do it, and what are the strategic factors driving it?”

LPL’s Legacy

LPL Financial, now working with FutureAdvisor, moved full steam ahead back in 2012 with its NestWise robo. But it then abruptly closed the unit in 2013 to “save costs.”

“If you don’t do [the strategic] thinking, it can cause you to rethink the robo plans,” Welsh said. “LPL rolled out its own robo about five years ago and then killed it for [this] reason … And here we are, and [LPL] is back at it again.”

In other words, broker-dealers must do the tough thinking upfront — or else. “False starts happen for a reason,” the consultant explained. “You can’t just robo to robo or you end up like LPL, which moved early and then shut it down.”

(LPL says its new robo advisor is “in a pilot stage” and that it plans to make its Guided Wealth Portfolios available to advisors “in the coming months.”) 

Speaking about the broker-dealer business in general, Welsch added: “Knee jerk reactions are never a good idea. There are multiple challenges with automated or digital advice. It’s not as simple as it sounds to bolt one on to your wealth business.”

Price, Market Pressure

In general, robo technology is meant to help automate work for advisors for a different client segment. The downside is that it pushes down fees and commoditizes the work advisors do.

“It’s all new territory,” said Welsh.

While rolling out different automated options, as Charles Schwab is doing with direct-to-consumer and other options, makes sense for some firms, these moves do not make sense for all firms.

“Schwab is low-priced, already online and a technology-focused company,” the consultant explained. “RBC is more of a bank and wealth firm.”

Like many firms in the business, he says, RBC may not have thought through all the issues that launching a robo entails. “Are they creating a channel conflict for their own advisors with the robo?” he asks.

In general, new technology should free up advisors’ time to go after more high-net-worth clients by automating some of the back-office work, according to the consultant.

This seems to be the thinking behind Raymond James’ approach to its Connected Advisor platform, for example.

“While many industry alternatives seek to disintermediate advisors, Connected Advisor will support advisors and their commitment to serving clients,” Chairman and CEO Paul Reilly explained when announcing the program earlier this year.

Taking a segmented approach and letting a robo or automated platform help a firm add clients with limited assets, for instance, is a reasonable strategy, according to Welsh, since these clients should later amass assets and move up the food chain as consumers of other wealth services.

“The point is to be integrated,” he explained, and to be ready when the client finds out that charges go up from 20 basis points for robo services to 130 basis points for wealth management.

“That is a big change,” Welsh said, “so advisors have to be able to say ‘Here is what you get for the additional charge.’ … It’s challenging to do this — go from onboarding to full service.”

For its part, RBC Wealth says the robo, Investor Gateway, was “still in the pilot phase and hadn’t been rolled out across [its] U.S. footprint.” It adds that it aimed for the pilot program to “be a small-scale, experimental effort” to generate both client and advisor feedback.

“Based on what we’ve learned, we are pivoting our approach [and] looking at how an opportunity like this will fit into our broader digital strategy” while also juggling other industry issues, such as the DOL fiduciary rule, it said in a statement.

— Check out RBC to Launch New Wealth Management Tech Platform on ThinkAdvisor.