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When incorporating robos pays off

Investors’ use of robo investment advisory services is soaring, but instead of viewing this as a threat, some advisers are finding that it makes sense to incorporate the services into their practices.

“We wanted to have robo solutions to be at the pulse of financial technology and what’s available for us to use,” says Matthew Adams, chief investment officer at Mission Wealth, which is based in Santa Barbara, Calif. “We see it as a growing resource for smaller clients that don’t need much if any customization.”

Assets managed by robo advisers in the United States reached $100 billion last year or about 3% of total retail assets under management, according to consulting firm Deloitte, which predicts that robo assets will jump to between $5 trillion and $7 trillion by 2025, accounting for 10% to 15% percent of total retail assets.

Advisers can access robo services through specialized providers, such as Betterment, or through discount brokers, such as Schwab and Vanguard. Mission Wealth uses Schwab Institutional Intelligence Portfolios and will add the Fidelity Go service, which is slated to begin soon.

About 25 of Mission Wealth’s 750-plus clients are in the Schwab service.

“It has been a great tool for the children and grandchildren of our clients who might not have enough assets just yet to warrant a money management relationship,” Adams says.

About one-third of the firm’s robo users are client offspring.

“This generation prefers to interact in a different way,” Adams says, adding that they are comfortable doing business online. “And for us it provides an opportunity to engage the next generation and make the family clients for life.”

Ryan McGuinness, founder of CTR Financial in Lincolnshire, Ill., which just opened its doors this year, uses Betterment Institutional.

“When I founded my firm, I knew that portfolio management wasn’t going to be a differentiator for me,” he says. “Nearly 80% of professional portfolio managers can’t beat their benchmark over the long term.”

So McGuinness has all four of his clients in Betterment.

Both Adams and McGuinness say that their clients are happy with the robo platforms.

Betterment charges a fee of 25 basis points, which McGuinness rebates from his charges to customers.

Schwab charges 10 basis points to firms with less than $100 million in assets at Schwab outside the robo service and zero to those above that threshold. But all customers must keep 4% of their assets in cash, and Schwab uses that money to invest.

The fees are much lower than for active management.

“For us, robo is a nice efficient tool for smaller accounts,” Adams says.

This story is part of a 30-30 series on ways to upgrade your practice.

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