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Tech Vendors Bet on Robo Future for All FAs

By Thomas Coyle February 17, 2016

Adhesion Wealth Advisor Solutions, a unified managed account provider to RIAs, has teamed with other wealth firm vendors, including custodian TD Ameritrade, to give advisors a crack at fee conscious young clients who might otherwise look to self-serve robo platforms to meet their budding investment needs.

In linking this low cost approach to UMAs — traditionally an upmarket offering — Adhesion says it’s banking on the eventual ubiquity of robos in wealth management firms of all sizes and types.

“It’s a bet on the future,” says Barrett Ayers, product chief at Charlotte, N.C.-based Adhesion, which manages about $3 billion for clients of independent RIAs and supervises another $13 billion.

“We’re betting that today’s underserved, under-$50K emerging investor is the future.”

Though direct-to-investor robos like Wealthfront and Betterment grab headlines, they may not manage enough, or have pockets deep enough, to threaten established advice industry players as standalones.

But the premise on which they work — that low-fee, web-based and algorithm-driven investment interfaces can cover the bases for most individual investors — has potential to change how traditional FAs do business. That’s why custodians and asset managers have geared up to sell them robo capabilities.

Consensus has gelled around the idea robo advice on its own “is not a good business model but it’s a great technology model,” according to Aaron Klein, CEO at Riskalyze, a maker of investment-risk-assessment software that’s part of the Adhesion and TD Ameritrade auto-advice package.

That’s why Fidelity, Schwab, Invesco, BlackRock and others offer homemade or outsourced robo platforms to RIAs, banks and brokerages that want to combine automatic onboarding and basic investment offerings with person-to-person interaction.

This is supposed to streamline operations and give FAs capacity to add smaller clients — both for business scale and as an entree to a new generation of big-fee customers.

Barrett Ayers

The Adhesion take on the robo concept, centered on TD Ameritrade’s Unified Managed Account Exchange platform, has a couple of twists.

First, the Adhesion version hinges on UMAs — fee-based, single-account investment products that blend different allocation sleeves — even if the ones here on offer are composed solely of ETFs.

Next, it comes with a front end featuring Riskalyze. This gives clients a known and trusted tool for matching investments to their appetites for risk.

And minimums can be as low as $1,000.

Adhesion’s platform fee for its robo-style UMA is zero for the first $50,000 and 10 basis points thereafter, according to Ayers.

As a result, in some cases clients can see all-in fees as low as 20 basis points.

But to get access firms must be TD Ameritrade clients and they must have at least $25 million “in traditional UMA business” with Adhesion, says Ayers.

That last restriction keeps the offering from being “in aggregate a losing proposition” for the manager of managers, Ayers adds.

From 30,000 feet Riskalyze’s Klein sees this offering as a part of a far bigger robo movement.

“If you’re an advisor who wants to use UMAs, then this is for you,” he says.

“The point here,” adds Klein, “is that three years from now a financial advisor without a robo will be like a bank branch without an ATM.”