(The writer is a Reuters columnist. The opinions expressed are
By Hilary Johnson
April 14 Some flesh-and-blood financial advisers
are competing head-on with so-called "robos" by providing their
own low-cost automated investment advice services.
David Edwards, chief executive of New York-based Heron
Financial Group, is one.
Since September, Edwards has spent about $40,000 and
countless hours on a new, low-fee digital advice platform aimed
at younger clients who want to handle their investments online.
There is reason for traditional advisers to worry about
competition from "robo-advisers," which use algorithms to manage
portfolios at a fraction of a human adviser's typical 1 percent
fee. Assets managed by the automated services, which include
Wealthfront Inc, Betterment and Charles Schwab Corp, will
increase at least three-fold this year, to as much as $60
billion from $16 billion, according to a March report by Aite
Group, a Boston-based research firm.
Edwards' offering will use an algorithm from Betterment
Institutional, a digital platform for advisers from Betterment
LLC, to select investments and tweak portfolios. Edwards will
charge clients 0.75 percent of their portfolio, instead of the 1
percent and up he charges for traditional stock and bond picking
and other services.
Edwards sees it as an investment in his firm's future.
"The firms that don't have a digital platform for clients
will be extinct in five to 10 years," he said.
Providing an online investment management option that costs
less than adviser's usual fee is a bold strategy, more so than
using practice management software such as Oranj, because it
segments the business.
Advisers must weigh the pros and cons of doing so, said
Sophie Louvel Schmitt, senior analyst at Aite Group. Those who
invest in such an offering could boost their chances of reaching
a younger generation. "But before they do that, they should make
sure they're not cannibalizing their business, and providing
enough value to existing clients to justify the higher price,"
Ritholtz Wealth Management in New York launched Liftoff, its
digital-only platform, last fall. The service caters to those
with at least $5,000 to invest, and they pay 0.4 percent of
assets under management annually, compared with the traditional
Ritholtz client, who has at least $1 million and pays 1 percent
to 1.25 percent in fees per year.
The firm made some tweaks during the first six months, such
as adding a way to accept transfers from outside investment
accounts and streamlining the process for answering clients'
questions, Ritholtz Chief Executive Josh Brown said.
"It's about what we expected in terms of ongoing
maintenance, which is not much at all, and that's critical to
being successful," Brown said.
Brown declined to comment on how much Liftoff manages. But
he counts more than 1800 people who are either established users
or are signing up.
Brown, like Edwards, hopes some digital clients may
eventually become traditional wealth management clients.
But he is also betting that the digital platform may be used
in some form by all clients, regardless of account size or fee
schedule, and that makes it a worthwhile investment.
"This is something that we think will pay dividends very far
down the road," Brown said.
(Reporting by Hilary Johnson; Editing by Suzanne Barlyn and