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Robo Wars Lead FAs to Bypass Big Names and Upstarts

By Murray Coleman August 10, 2017

For more than a year, brick-and-mortar advisor Mark Balasa has been poring over reports and reaching out to robo advisors. But he’s finding the landscape increasingly murky.

“Big asset managers and custodians like Vanguard, Fidelity and Schwab have the distribution channels and the brands to really carry the day as the market shakes out,” says the cofounder of Balasa Dinverno Foltz, which manages $3.7 billion.

At the same time, he wonders how pioneering independent "pure-plays" such as Betterment, Personal Capital and Wealthfront can keep fighting a growing wave of big asset managers and broker dealers joining the robo wars.

“After talking to all of the major competitors, we see the robo market shaping up as a real arms race between the Vanguards and the Betterments of the world,” Balasa says.

So how can advisors decide which robo technologies to integrate into their service platforms – both to attract more up-and-coming young professionals and to build greater operational economies of scale?

Robos don’t appear to be in jeopardy of fading away. Indeed, a new forecast by Standard & Poor’s market intelligence unit predicts robo assets under management will increase 46% from 2016 to nearly $144 billion by year’s end. Within four years, the research firm estimates it will top $450 billion industrywide.

But it’s not looking like a straight-line growth pattern for all competitors, says S&P analyst Tom Mason. He also sees independent pure-plays facing increasing pressure from fund companies and brokerages.

His list of recent or imminent launches include names like Wells Fargo, Morgan Stanley, JPMorgan, TIAA, T. Rowe Price, Bank of America and TD Ameritrade.

In fact, Mason says only three indie robos managed more than $1 billion – a generic rule-of-thumb metric for survivability – at the end of 2016. Those were Betterment with around $8 billion, Personal Capital with $4 billion and Wealthfront with another $4 billion or so.

“Right now there are no clear guaranteed winners” among indie robos, Mason says. All are likely to encounter such “intense competition” from bigger asset managers, custodians and brokerages that many could wind up being “gobbled up” or “fall out of the market completely.”

That makes things dicey for advisors like Balasa who are trying to upgrade their websites and computer networks to deliver cutting-edge investment advice.

Mark Balasa

As a result, a growing number of wealth managers say they’re looking to next-generation technologies to anchor their client-facing platforms.

Balasa Dinverno Foltz is part of that movement. “We’ve basically decided to take greater control of how we work with clients in the future by building our own robo capabilities,” Balasa says.

To this end, the firm is beta-testing software from SS&C Advent’s Black Diamond division.

“This type of web-based service is going to allow us to more easily work with families holding a broader range of assets and more complicated portfolios – things most robos have difficulties dealing with on a regular basis,” Balasa says.

By early this winter, he expects most of the firm’s 1,000-plus clients to be able to access these electronic enhancements.

“Right now we’re seeing it as a value-added approach that’s going to be offered for free to our existing clients,” Balasa says. “But in the future, we’re exploring separate pricing structures to offer a broad range of online robo-like features to new investors.”

Advisors at Savant Capital in Rockford, Ill., say they’re also consciously sidestepping market risks and any looming consolidation in the ranks of indie robos.

“This isn’t rocket science – advisors have other choices than just partnering with an outside robo,” says Brent Brodeski, chief executive at the indie RIA, which manages $5.4 billion.

Savant is moving to license several off-the-shelf software suites which the firm believes can offer clients more "robust" features and focus on more "sophisticated" planning issues than most retail robos tackle.

The wealth manager is also building specific algorithms on its own to help integrate such store-bought packages and build out its electronic services menu.

That’s a robo strategy which is designed to provide a more customized feel to clients, Brodeski argues, as well as costing much less than building everything from scratch.

“Tomorrow’s bionic advisor isn’t going to try to be superhuman,” he says. “But they are going to act smarter about using all of the latest technologies on the market today.”