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Will Robo Advisors Complement or Cannibalize Your Business?

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CHICAGO – Nearly every speaker at SIFMA's Private Client Conference talked about it. Almost every panel was asked about it. What was the hottest topic this year?

Robo advisors.

"If you had asked a group of those people a year ago, they would have said it's a non-issue. If that were truly the case would they all be talking about it today? I don't think so," said Joel Bruckenstein, founder of Technology Tools for Today, and who was not at the conference. "The conversation has changed somewhat. Everyone is aware of them and that they are gaining some traction."

It's not just a hot topic among management, according to Jill Jacques, head of global wealth management at North Highland Company.

"We have conversations with clients everyday about what robo advisors mean to them and to the industry," she told conference attendees.


The constant reassurances and ceaseless conversations about robo advisors and similar technology underline the point that firms are still working out how to address this threat – indeed whether it even represents a threat.

Industry insiders and observers note that robo advisors are not just relatively new; their quick evolution has caught some leaders of wealth management off guard.

"We've already started to see acquisitions in this space as well as major offers from firms like Schwab," said Bill Butterfield, an analyst at research firm Aite Group, and who also was not at the SIFMA conference. "I don't think they know how it will turn out and it's been such a rapid evolution."


The wealth management industry is still in the early stages of the robo evolution, just as brick-and-mortar stores were when online retailers like Amazon came to life in the 1990s.

While no leader prophesized the imminent death of wealth management as we know it, predictions varied about what, if any impact, robo advisor technology will have.

Brand Meyer, head of the independent brokerage group at Wells Fargo Advisors, suggested at a panel that robo technology could serve young clients with too few assets to be served by existing advisors.

"We would hope that as that client creates additional wealth, we may build trust with that client and transition them into a different channel," he told his fellow panelists.

Several speakers and panelists reassured attendees that the technology would not displace human financial advisors or cannibalize their businesses.

"We recognize that relationships are critical to investment success," said Lisa Hunt, executive vice president at Charles Schwab. "When we developed this product it was not to disintermediate existing relationships. It was to enable choice for the client and to recognize that clients want to engage in different ways with the same company."

Mary Mack, head of Wells Fargo Advisors, dedicated her speech at the conference to establishing the primacy of human relationships in a digital world.

Advisors play a key role in their clients' lives, from the birth of a child to the death of a loved one, she said. "They give advice that is tailored and meaningful to the client. It is both personalized and of high uniform quality."

The issue going forward, she said, was to evaluate how that advice is delivered and "the kind of collaboration that we are engaged in with clients."


In his presentation at the conference, Stifel Financial CEO Ron Kruszewski emphasized that technology has been a tremendous boon to civilization, resulting in enormous wealth creation. The current era will be no different, he said.

If the industrial revolution was characterized by machines that enhanced muscle power (think of combustible engines replacing horses), then our current age is typified by inventions that augment our intellectual powers, he told attendees, pointing to the exponential growth in computing power.

In an interview with On Wall Street following his presentation Kruszewski lamented that the current conversation is so dominated by talk of technology replacing human beings.

"Is tech going to replace you? No way!"

Financial advice is about emotional intelligence, he said. "Technology augments that."

But it is precisely that fast evolution of powerful technology that has many asking, will human advisors be replaced by computer programs?

Still, Kruszewski was not alone in that estimation. Other attendees and speakers said that robo advisor-type technology could very well end up being a tool in the hands of existing advisors, just as laptops and smart phones are.

"I think it's also a great way for advisors to become more efficient. It may help advisors follow up with clients after meetings or with planning," Bill Morrissey, divisional president of independent advisor services at LPL, told attendees.

In a different exclusive interview with On Wall Street, Raymond James & Associate President Tash Elwyn said it's important to remember that technology does not stop evolving.

"There is no finish line," he said, adding that what matters is "the utilization of the technology by advisors."
Recruiter Danny Sarch, also not at the conference, said this threat is no different than previous challenges the industry has faced, pointing to the rise of discount and then online brokerage services. Firms learned to adapt to and evolve with those challenges.

And besides, Sarch said, there's also immutable facts of life.

"The 20 somethings want to do it themselves. I believe that," he said. "But eventually you reach a point where life is too busy and your problems are more sophisticated, so you will want advice. And I haven't seen anything to contradict that normal life pattern."

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