Should advisors be concerned about a new movement among robo-advice platforms? Probably not, says a group of investment experts interviewed by Financial Advisor IQ.
The boom in automated investment advice has given rise to a new movement in robo-advisor technologies. Dubbed Robo 2.0, these new platforms offer a range of technical analyses, hedging techniques, and tactical trading strategies to users.
These novel robo-advisors – which include Macroaxis, qplum, LifeStage Investing and Kavout – are a double-edged sword: they offer more choice and investment nuance, but they also expose clients to much more investment management complexity, as well as more expensive funds and higher advisement fees.
That’s according to Brent Brodeski, chief executive of Savant Capital, which manages about US$5 billion in assets. While he acknowledges that Robo 2.0 democratizes financial analysis tools for general consumption, he deems the new challengers as “hedge-fund wannabes” and “absolutely no threat to traditional wealth managers.”
“This new wave of enhanced robo service is really stretching the parameters of basic asset allocation theory – it sounds like many of these are talking out of both sides of their mouth in terms of blurring the lines between long- and short-term investment planning,” says Brodeski.
A similar assessment is offered by Andy Kapyrin, a partner at RegentAtlantic, which manages around US$3 billion in assets. “They’re offering a lot more granularity [than first-generation robo-advisors],” he says. “So the danger is that they’re focusing on the trees rather than the forest.”
He sees no reason for his firm to worry about the new crop of robos since their clients’ wealth planning needs go beyond portfolio management. “These new robos are offering investment services that probably appeal mostly to skilled hobbyists. We see it as a niche within a highly commoditized market for investment-only advice.”
Scott Bordelon, president of Beam Asset Management, agrees. His indie RIA firm manages about US$380 million, and it just launched its own “robo chassis” that aims to reach aspiring professionals, who can open accounts online with as little as US$5,000.
Bordelon says the service, which is named LightBeam, is “second generation” because it uses both active and passive ETFs. It also employs human portfolio managers and individual advisors, who communicate with clients via email, video conferencing, and other channels.
By incorporating a human element, Bordelon hopes the service will help investors understand his firm’s process, take wealth management discussions beyond simple portfolio questions, and signal an openness to regulation for higher fiduciary standards – something he fears that clients signing up for robo-advisors might take for granted.
“Although we’re using many of the same tools as these second-generation robos,” says Bordelon, “we remain skeptical about how successful these new online services will prove to be over time.”
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