Robo-Advisors: Threats and Opportunities

Robo-advisors may pose a threat to human advisors, but they also offer opportunities, Kent Schutte and Robert Young suggest in the newest NTSA podcast.

Why are robo-advisors growing? Schutte, NTSA’s current president, and Young, the current president-elect, offer several explanations:

• they are a computer-based means of providing some direction at a very low cost to clients;

• they are attractive to the certain percentage of investors who don’t want to work with a person; and

• there are people who do not have a favorable view of financial advisors.

“It’s meant to really replace personal advice,” says Schutte. “With a lot of the robo-advisors, what’s happening is people are going to them because they mistakenly think that what a financial advisor does is just invest their money,’’ adds Young, who also notes, “robo-advisors, when they sell themselves as inexpensive alternatives, are really trolling for larger accounts. It’s not what it seems.”

But robo advisors cannot fully supplant a human financial advisor, they argue. “It’s more than three questions or four questions — it’s a relationship, it’s a long-term thing,” says Young.

The 403(b) market is less affected by robo-advisors than the 401(k) market — so far, says Schutte, who attributes this to the fact that “non-ERISA 403(b)s still have multi-investors.” But he adds that the robo-advisor industry is also pushing to make inroads into the IRA market.

What can 403(b) advisors can do to head off the spread of robo advisors? Schutte says he is “taking the best practices from robo-advisors — in other words, the technology and the online enrollment and online information, and then trying to blend that by offering personal service.” Young suggests, “Educate your clients from the get-go. Start doing it now. Explain what you offer.” And he argues that positive steps are best: “You have a better chance by being active rather than reactive.”

“The best thing that we can do as an organization is make sure that we as advisors promote best practices and maintain the integrity that we want to have in our profession,” Young suggests.

NTSA Net podcasts feature the latest industry intel in an easy-to-digest audio format. You may either stream them or download them to a personal device.

Other podcasts include:

• Making Yourself Accessible to Your Clients” — Ellie Lowder and Jill Snyder discuss the ways advisors can make themselves more accessible to plan sponsors and their employees.

• Social Media Best Practices for Advisors” — Mike Webb of Cammack Retirement Group talks with Jon Hall of PlanMember Services about the best ways for advisors to leverage the growing popularity of social media to enhance their businesses.

• What Does the DOL Fiduciary Regulation Mean to You?” — with NTSA Executive Director Chris DeGrassi.