Robot revolution: Is it a threat to your business?

With BMO becoming the first of the Big Banks to offer a robo advisor service, should advisors be concerned?

By Paul Lucas

Robo-advisors: a welcome advance to the way you do business or a threat to your livelihood? It appears that financial planners are split in their opinions about the arrival of the technology that could sort out debts and tax affairs via mobile devices while consumers eat their breakfast.

Last week we revealed that Snapchat may be about to join the robotic revolution (see article) and now Forbes is suggesting that human financial advisors are failing to view robo-advisors as a significant competitive challenge.

According to Silviya Simeonova, senior analyst for Corporate Insight, low fees, high-end technology and transparent prices from the robots will lead to consumers expecting the same from full-service companies.

John DeGoey, meanwhile, portfolio manager for Burgeonvest Bick Securities Limited, believes they are a legitimate and viable alternative to human advisors and the industry needs to sit up and take notice.

“You can like it or dislike it, but ignore it at your peril,” he said.

“They provide a legitimate means for the industry to segment itself and for people to determine what type or level of service they want.  There’s also the possibility that people might leave DIY discount brokerages to work with robos, too, so it’s not just the human advice channel that might be cannibalized.

“However, it’s yet to be seen how people react when a robot says ‘hold’ as the market is dropping.”

Randy Cass, CEO and founder of Nest Wealth, however, believes that the industry has “nothing to be afraid of.”

“Clients of robo-advisors in Canada still have access to the ‘personal touch’,” he said. “Robo advisors in Canada are more akin to bionic advisors. Firms can use the best technology where appropriate and combine it with a traditional portfolio manager assigned to each client's account. This means that a professional is available to speak whenever the client wants.”

Robo-advisors are effectively a wealth management service that use algorithms to suggest automated investment portfolios deemed suitable for an individual’s risk appetite and goals. Though currently in their infancy, a report from Cerulli Associates has suggested that robo-advice platforms will reach US$489bn in assets by 2020 – a rise from just $18.7bn today.