FinovateFall Tech Panel Left to right: Phil Nicolaou, Envestnet senior vice president and regional director; John Crittenden, chief strategy officer and director of partnerships at Pefin; April Rudin, founder and president of New York wealth management strategy firm The Rudin Group. (Photo: Jeff Berman/ALM)

A balanced, hybrid approach to advising that includes robo-advisory services combined with human advisors stands to have the most success in the future, according to executives from Envestnet, New York-based financial advisor Pefin and New York wealth management strategy firm The Rudin Group.

Asked during a panel session at the FinovateFall conference in New York Wednesday if the industry should just make hybrid offerings available to consumers and let them choose what they want, Phil Nicolaou, senior vice president and regional director at wealth management technology company Envestnet, said that was “conceivable to do.”

But “my sense is that, whether you’re 16 or you’re 60” years old, “our experiences are starting to get shaped by our other online experiences — whether it’s an Amazon experience or” another online experience, he said. The point is that people “have expectations and, as an industry, we still haven’t delivered intuitive, simple kind of native solutions” in the financial sector as well as firms in other sectors have done, he said, adding: “We’ve got to do a better job of that. I think that’s the next frontier for us to tackle.”

Pure robo-advisors tried to shake up the industry, but most of them weren’t all that successful, according to John Crittenden, chief strategy officer and director of partnerships at Pefin, a company that bills itself as “the world’s first AI financial advisor.”

The “original robos were wrong with their initial strategic direction of who the market was and so they built the experience around the wrong market,” according to Crittenden. What happened was that, “instead of bridging that trust and confidence gap with a 45-year-old rolling over a six-figure account from a 401(k), they weren’t talking to that person — they weren’t communicating properly to that person [and] they completely missed” the market they should have been targeting, he argued. It’s been widely reported that robos mainly targeted millennials out of the gate.

Many startups “had the romantic notion of creating new markets of the under-advised and underserved,” he told attendees. But “under-advised and underserved means no money for the most part,” he said, which drew laughs from some of the audience. “There is no market there to create. There just isn’t,” he said. Charles Schwab “already knew that [and] Vanguard already knew that — that’s why they didn’t fall into that trap” when they started offering their own digital advising services, he said.

Advisors are probably not afraid of robo-advisors at this point, he went on to say, noting that he often talks to wealth management advisors and they tend to “know least about the robo-advisor [market and] they know even less than the average consumer knows about it.” Robo-advisors are “not even, for the most part, on their radar, which I find very interesting, [so] they have not felt it — they have not felt anything from the robo-advisor movement” as far as competition is concerned, he said.

After all, “it’s a super small market,” Crittenden said of pure robo-advisors, referring to them as merely a “thimble of water in the ocean at this point.”

It’s a common mistake in general to assume that age is the most important factor determining whether somebody feels more comfortable communicating with human advisors in person or doing it online, he said, explaining: “It comes down to behavior more than age. This industry loves to say age and gender determines what you’re going to do. The reality is that’s not the case.”

As an example, he pointed out that if you go to an Apple store, you’ll likely see a 60-year-old businessman and a 13-year-old girl waiting in line to buy a new iPhone.

“Digital consumers span all age groups,” he said, adding: “There are 60-year-olds who haven’t stepped into a bank branch in a decade and there are 25-year-olds who do walk into a bank branch and they prefer to do banking that way.”

With all the big data available today, we can also “be a lot smarter on who we target” with our messages, he said.

Warning against “over-segmentation” of the market, April Rudin, founder and president of The Rudin Group, agreed with Crittenden on the age issue, saying one inaccurate perception is that digital advice tends to be given mainly to millennials because they’re “more predisposed to doing things online” than other generations. In reality, “when you look at anybody’s data points — any sort of valid report — you know that’s not true,” she told attendees. “The average age is around 43 and then the average age of a financial advisor is 55,” she said.

One factor working against robos is that the native financial services tech platforms haven’t built up any levels of strong trust yet with consumers, she said. Facebook, Amazon and Google may be among the tech giants entering the financial services market and “I can definitely see partnerships between some of these technology platforms and financial services where the partnerships make sense, where … they’re outsourcing the technology rather than developing it in-house,” she said.

Agreeing, Crittenden said a “great example” of that was last year’s deal between asset manager BlackRock and Microsoft in which those firms said they were developing a technology platform that helps people save and invest for retirement. That’s a “really interesting project they’re working on, where they’re going to go after the retirement planning market and be on every employee’s desktop,” he said, adding “that’s powerful” and predicting “those types of convergences are going to definitely happen” more.

— Check out 2 Cool Fintech Tools at FinovateFall on ThinkAdvisor.