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Cerulli: Your Robo Could Cannibalize Your Business

January 4, 2017

Traditional financial advice firms need to tread carefully when adding digital advice offerings if they want to eventually upsell clients on more expensive hands-on advice, according to a recent Cerulli Associates report cited by ThinkAdvisor.

The majority of executives at managed account firms say they favor discounted prices on their robo offerings, and 48% say their digital advice should cost 25 to 50 basis points, or about one quarter to one half of the cost of traditional advice, according to the report.

But Cerulli warns that pricing robo advice too low could prevent firms from being able to recruit clients to more expensive traditional advice services when their assets and financial needs grow, ThinkAdvisor writes.

The research firm suggests traditional advice firms should charge more than the 25 to 35 basis points charged by robo-only firms, according to the publication. Traditional advice practices will also need to explain the added value clients could expect from a human advisor at a cost higher than the firm’s digital advice platform, Cerulli says.

The report also found that about half of advice firm executives prefer to incorporate robo advice into their overall offerings, while almost a third would rather have a separate service, ThinkAdvisor writes.

Large brokerages are just as divided on the best approach, according to Cerulli. Schwab offers a separate digital advice service, while Vanguard’s robo is part of its overall advice business, ThinkAdvisor writes.

Advice firm executives also differ on how to add robos to their existing services. While 20% intend to build their digital advice platforms from scratch, 12% plan to outsource the robo completely, according to Cerulli. Meanwhile, another 12% want to outsource only the development and investment strategy aspects of the digital advice platform, Cerulli says, according to ThinkAdvisor. The most popular strategy, however, favored by 35% of executives polled, is to outsource development only but use their own firms’ investment methodology, the publication writes.

By Alex Padalka
  • To read the ThinkAdvisor article cited in this story, click here.