Robo-Advisers Boom, but Human Help Not Going Away

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By Sean Forbes

Nov. 3 — Retirement robo-advisers aren’t just here to stay, they’re also here to grow—and grow big, with estimates of as much as $2.2 trillion in assets under management by 2020.

However, there are lingering concerns, such as investors’ role in their investment decision-making, the continued need for someone to talk to and the risk of adviser-hopping based on comparative returns performance.

Robo-advisers use computer algorithms to lower the cost of recommending investments for customers. The market was pioneered by such companies as New York-based Betterment LLC and Redwood City, Calif.-based Wealthfront Inc.

Investors shouldn’t fear that they’ll never have the opportunity to talk with a flesh-and-blood adviser, either online, by phone or in person, while using a robo-adviser. As Boston-based Cerulli Associates pointed out in a December 2015 report, “the concept that digital advice is devoid of human mediation is myth.”

Not to be left behind, traditional firms such as Vanguard Group, BlackRock Inc., Charles Schwab Corp., Fidelity Investments, Morgan Stanley and Bank of America Corp. have rolled out their own robo-advisory platforms.

TD Ameritrade Holding Corp. is the latest to introduce a robo-adviser. The Omaha, Neb.-based company launched in late October its Essential Portfolio, which requires a minimum deposit of $5,000 and charges a 0.30 percent advisory fee. TD Ameritrade also announced in late October that it agreed to acquire St. Louis-based ScottTrade Financial Services for $4 billion.

Cheerleading, Qualified

Robo-advisers have been some of the Department of Labor’s biggest cheerleaders and wear the title “fiduciary” with pride. In fact, at the department’s launch of its fiduciary rule updating the Employee Retirement Income Security Act, representatives from at least three robo-advisers were in the audience—Betterment, Bethesda-Md.-based Rebalance-IRA and San Francisco-based Personal Capital.

Matt Hall, president of Hill Investment Group in St. Louis, told Bloomberg BNA that he gives robo-advisers high praise. “We love robo-advisers,” Hall said.

But Hall also qualified his enthusiasm.

“The fundamental problem I have is in order for the robo community to be successful, they need massive volume, they need huge numbers of new clients and new money,” Hall said. “And volume is the enemy of knowing the client. So, you have this crazy paradox that says we need growth to survive, but growth is the very thing that will prevent us from knowing and serving the client in a way that would allow us to truly understand when they need help being disciplined” in their investment and planning strategies, he said.

Robo-advisers may fit within the letter of the law, but not necessarily always within the spirit of the law, Hall said.

Nevertheless, robo-advisers are primed for success because starting savers typically don’t have the minimum balances that human advisers require, Hall said. And when investors have enough saved, human advisers will be waiting to help them with more complex financial planning needs, he said.

Comparison Shopping

Investors also shouldn’t get swept away with comparing the investing performance of one robo-adviser with that of another, James D. Osborne, president of Lakewood, Colo.-based Bason Asset Management, told Bloomberg BNA.

Osborne was reacting to results from a quarterly report comparing returns from robo-advisers, launched last year by Condor Capital Management, based in Martinsville, N.J.

Although Osborne said he’s not against robo-advisers, comparing returns is “the worst criteria you could use to evaluate robos” because they’ll fluctuate from one quarter or year to the next, prompting users to unnecessarily jump advisers.

So what are the best criteria?

At least cost—which is “a big factor”—and the range of services, such as the level of interaction with human advisers, Osborne said.

“I’m of the opinion that it’s hard for software to do financial planning,” Osborne said.

To contact the reporter on this story: Sean Forbes in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

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