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Fees and Regulation Key to Migration to Robos

February 15, 2017

One in five investors isn’t satisfied with what their traditional wealth managers do for the fees they charge, and many are moving to robos, the Financial Times writes of British investors. Meanwhile, U.S. robo-advice providers believe that investors’ preference for their lower-cost platforms will continue despite setbacks to the Department of Labor’s fiduciary rule, which requires retirement brokers to put clients’ interests ahead of their own.

Inquiries to advisor-matching website findawealthmanager.com from disgruntled investors rose to 19% of overall inquiries from 5% during 2016, the FT writes. Disgruntled investors were defined as those unhappy with high fees, bad performance or the level of service they receive. Meanwhile, what the paper calls the “switching culture” in the country’s financial industry is growing. And while switching a wealth manager is typically more complex and expensive and takes more time than switching bank accounts, it’s much simpler today and may become less pricy in the near future, the FT writes.

Fee competition and the proliferation of digital offerings have made it easier for dissatisfied investors to go elsewhere or renegotiate their fees with their current advisors, particularly for wealthier investors with large accounts or multiple brokers, according to the paper.

U.K. exit fees — the fees charged by wealth managers to investors transferring their assets elsewhere — are currently as high as 6%. But they may not deter investors from leaving much longer, the FT writes. Consumer groups are fighting for better disclosure of these fees, while some investors may be able to convince their new wealth manager to foot a part or all of the bill, according to the paper.

In addition, several traditional advice firms are already staggering the fees, dropping them to zero for clients who’ve been with the firm for several years, the FT writes. And some, including two of the U.K.’s largest online advice platforms, don’t charge any exit fees at all, which will likely put further pressure on traditional wealth managers, according to the paper.

The level of dissatisfaction among investors should therefore be a wake-up call for traditional wealth managers not living up to their clients’ expectations, Lee Goggin, co-founder of findawealthmanager.com, tells the FT.

Meanwhile, executives at robo-advice startups in the U.S. tell Reuters that the expected delay in the rollout of the DOL’s fiduciary rule will not stop the momentum of investors switching to digital advice platforms. Andy Rachleff, chief executive officer of robo-advice pioneer Wealthfront, tells the newswire that while an “expansion” of the rule would have helped, its delay doesn’t affect the company’s “ultimate success.” Seth Rosenbloom, associate general counsel at rival robo provider Betterment, tells Reuters that the attention already given the rule will make for better-informed investors and the delay wouldn’t hurt his company’s growth.

And Mike Sha, co-founder and chief executive of robo-adviser SigFig, whose robo technology is used by Wells Fargo and UBS Group, tells the newswire that the delay will not affect its partnerships nor its business “at all.”

LPL Financial, however, said last week that it may scale back the rollout of its robo-advisor if the rule is delayed, according to Reuters. Nonetheless, investor demand for more digital advice will likely continue regardless of what happens to the DOL fiduciary rule, analysts tells the newswire.

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