Regulator robo guidance reflects challenge to advisors

New guidelines on robo advisors have reopened the conversation on the value of investment advice

Regulator robo guidance reflects challenge to advisors
The US Securities and Exchange Commission (SEC) has released new guidance on robo advisors, saying they “represent a fast-growing trend within the investment advisory industry” and could “change the competitive landscape in the market.”  More and more, clients are pitting advisors against these investment platforms – and it’s a challenge that some advisors say should be welcomed.

“[Robos] bring attention to cost of asset management and the value of other services we provide,” John Napolitano of US Wealth Management told Financial Advisor IQ. According to him, robos have stripped investment fees down to the bone – 25 to 40 basis points – putting the onus on wealth managers to justify their higher fees.

“For me robos are fantastic at getting a conversation started: ‘Sure, we cost 100 basis points but here’s all we can do,’” Napolitano said, referring to his firm’s menu of services that includes financial planning, insurance, tax and estate planning and family governance in addition to investment management.

Robo-advisors are a problem for advisors who charge 1% and “don’t do a damn thing” beyond what their automated rivals can do, Napolitano said. “[R]eal wealth managers, who put in 40, 50, 60 hours a year on a client will feel no pressure.”

There has definitely been an “increase in advisors saying clients are talking about robos and,” consequently, “questioning the value” of traditional financial advisors, according to Kendra Thompsion, a managing director in the wealth and capital-markets unit at Accenture.

But as robo-advisors’ offerings become more sophisticated – possibly advanced by the continued march of artificial intelligence and interactive technology – the threat they present to advisors could soon be as much a matter of an advisor’s age as the depth of their shelf of offerings, Thompson noted. “[A]dvisors under 50 need to be creating a thoughtful response” to robos, she said.

The solution many firms have gone for is to create hybrid business models, with traditional advisory outfits shifting into a human-robo platform. Assuming this becomes the prevalent response to the pressure exerted by robos, “the next generation of advisors won’t look anything like today’s advisors,” Thompson said.

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