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Can Robo-Advisors Survive as a Stand-Alone in the Retirement Industry?

Robo-Advisors

In the popular science- fiction film, Rise of the Machines, against all odds, humans prevail over their artificial intelligence robot counterparts. In a “life imitates art” moment, the stagnation of robo-advisors in recent years in the retirement industry may be signaling that pure automation simply has its limitations.

While robo-advisors like WiseBanyon, Wealthfront and Betterment are now offering cash incentives for new clients and referrals (a sure sign of sluggish adoption rates), many of the major brokerages and record keepers are now offering some type of automated account management technology. At the same time, robo-advisors (perhaps seeing the writing on the wall) have begun to offer live, human advisors to supplement the robo-advice.

This is a similar pattern we have seen in many other industries where the promise of pure automation has been eroded by incumbents meeting the “pure-play” automation process with technology of their own, diminishing the appeal of the technology-only providers. Or take the example of hard-wired GPS and navigation systems in automobiles; why pay thousands of dollars for that extra technology when almost any new smart phone can do the same exact thing, for free?

It certainly appears that the robo-providers and the traditional advisory channels (human-based) are adopting the benefits of the other’s strengths; the likely outcome will eventually be some type of hybrid approach. The question is, can the robo-advisors stay around long enough and gain enough market-share to survive before the traditional brokerages and record keepers close the technology gaps and make technology pure-play robo’s irrelevant?

Using history as a guide, it does not bode well for the pure-play robo-advisors. Again, a likely scenario played-out in other industries may see the top robo’s being acquired by the larger brokerages and providers.

This is not to diminish the appeal, the innovation or the benefits of robo-advisors; it is just a very well-defined marketing evolution that has been played-out in other industries. Robo-0advisory technology is here to stay, the real question will be, who will be providing it?

Timothy Kelly
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