Are Robos Peaceful or Threatening?

“We did the study because we felt there was a lot of confusion out there about robo-advisers and the ability of our advisers to embrace that technology,” says Todd Clarke, chief executive of CLS Investments. “The study bore all that out. Advisers are confused; they do see it as a threat.”

CLS Investments, an asset manager that creates exchange-traded fund (ETF) strategies, conducted its survey to gauge the significance of the conflict that advisers seem to be experiencing in the face of a new technology.

But the technology is just one of many facets of the advisory business that is changing, Clarke believes. “Think about grocery shopping or buying shoes online,” he tells PLANADVISER. “Those have changed, and even hailing a cab has changed.”

Pointing to TurboTax, Clarke notes that while it initially seemed to threaten tax professionals, the platform didn’t replace tax accountants. Instead, it changed the way they do business and eliminated older technology—namely the ledger and the No. 2 pencil. “Tax accountants can no longer exist just because they process tax returns,” he says. “They had to change the way they process documents and the type of service they provide. We believe the same thing will happen to the advisory business.”

Clarke defines “robo-adviser” as a straightforward tech development. A robo-adviser is simply another name for a client onboarding and management system that puts investors into an investment portfolio using algorithms and other elements of digital and online tech. “Instead of the adviser printing the paperwork and having the client sign it, an e-signature is used and there’s no need for a face-to-face meeting,” he adds. 

CLS is excited by robo-advisers, he says, because the firm believes it is a catalyst that is going to drive change in the industry. Instead of fighting the change, Clarke says, advisers need to retool their offices. Whether it’s in the way they deliver financial planning or the way they share and save documents, Clarke says that advisers need to embrace new technologies. “The way they give advice needs to be adjusted so they can interact with clients the way clients want to interact,” he says, noting that banks have changed their services to provide direct deposit, online services and automated teller machines (ATMs).

Robo Takeover Unlikely

As for scary images of robo takeovers, Clarke says the wrong questions are being asked. “It’s not, are robos going to take over,” he says, “but what technology do advisers need to have in order to change and improve the client experience? Should they buy, build or partner to get that technology?”

One reason for the widespread alarm is that much of the previous tech innovation has been focused on the back office, Clarke observes. Robo is a client-facing technology, and it’s shaking things up.

“We’ve seen this many times,” Clarke says, citing Charles Schwab’s introduction of no-load funds in 1984. “We had all loaded funds, and all of a sudden Charles Schwab had a platform for no-load funds. No-loads were going to replace advisers. Then, day trading came into vogue. Day trading was going to replace advisers. We could all just day trade our way to retirement.”

While they didn’t put advisers out of business, Clarke says, no-load funds did drastically change the way advisers worked, including their compensation model and the way they could add value to client portfolios. Change is usually for the better, he says, and those unwilling to change have pretty much gone the way of the dinosaur, whatever the industry. 

Clarke believes robo-advisories will have a similar trajectory, and are as likely to replace advisers as no-load funds or day trading. Whether advisers embrace robo and the additional technology to improve client interaction is still a question. “Humans and robos need to work together,” he says. “It’s not robo versus human—it’s human advisers utilizing those tools.

The financial advisory industry has been somewhat protected from change, Clarke says, and that’s why there’s so much talk about robo. The study results were surprising to Clarke, who didn’t expect the jarring result of nearly all advisers saying robo could exist side by side, and three-quarters still seeing it as a threat. “We think the robo is just a very small part of what’s on the horizon,” he says. “It’s sparking great change in the industry, and this is not the endgame.”

CLS Investments, a member of NorthStar Financial Services Group (NorthStar), is an asset manager in Omaha that reports managing in excess of $6 billion.