Divisions Emerge in Use and Meaning of ‘Robo’

If any conclusions can be drawn about the expanding use of so-called robo adviser technologies, it’s that automation is not an all-or-nothing game. 

More than half of advisers are using “robo” in some way, Financial Planning Association (FPA) research shows, but four in 10 have serious reservations about offering tech-based advising.

A recent FPA study explores some of the main reasons why financial advisory practices are adopting robo-adviser technologies. The research shows that numerous types of automated advice technologies are penetrating the advisory space, but all generally rely on asset-allocation algorithms to automatically build and maintain client portfolios at larger scale than the adviser could handle traditionally.

According to the FPA, when asked why they are interested in robo, advisers frequently spoke about using the technology “as a supplement to the advice they provide, outsourcing investment management to focus on the value-add side of the business.”

When advisers use robo this way, the FPA says, they are able to create a segmented service offering and target younger or cost-conscious clients while also keeping higher-touch options available for client segments seeking more personal service. FPA President Edward Gjertsen says these advisers often feel financial planning is “a process that involves much more than a simplified approach in allocating one’s investment portfolio.”

“With that said, it stands to reason that some practices may be considering robos to augment current offerings, especially for younger clients and those with simple financial situations,” Gjersten explains.

NEXT: Changing the client conversation 

Respondents to FPA surveys identified a laundry list of topics that are influencing client conversations as part of the financial planning process. For example, many advisers are focused on “working with the next generation and associated estate planning issues,” another area where robo advising has its limits.

Other advisers said they are focused on helping clients plan appropriately for age-related change, including the death of a spouse, elder care and long-term care. In the defined contribution (DC) retirement planning space in particular, there is a strong focus on leveraging technology to help clients “define their income needs in retirement and design income strategies,” the organization says.

Despite the wide interest in robo, fully 42% of advisers say they still don't see a place for it in their practice. FPA Practice Management Director Valerie Chaillé says the resistance can partly be explained by the fact that financial planning professionals feel that conversations they are having with clients “involve so much more than asset allocation.”

“As we consider how to incorporate robo technology into our practices and how to charge for our services, it becomes increasingly important to effectively demonstrate and communicate the value we provide to clients through holistic planning,” she says.

Julie Littlechild, founder of If Not Now Research, which fielded the underlying adviser survey for the FPA, says less than a quarter of advisory clients report receiving “very high value relative to fees.”

“We see evidence in this study that planners are looking to combat the issue through specialization,” she notes. “While that is encouraging, the additional time required will force planners to evaluate how they charge, otherwise they risk negatively impacting profitability.”

The full report, which looks beyond technology trends, is now available at OneFPA.org.