A look back at the Robo Industry

Posted on June 3, 2020

The Emergence and Spread of Robo Advice

Robo advice as we know it today first emerged into the mainstream in 2008 when Betterment and Wealthfront were founded and later launched digitally managed portfolios with low fees and minimums. In 2015, Schwab launched its Schwab Intelligent Portfolios and Vanguard launched its Personal Advisor Services. Since then, robo-advice products have become ubiquitous among financial institutions. Here, we intend to take a look back at the industry, how its evolution is impacting individual investors, and what investors can expect next from these innovative products.

When robo advisors entered the mainstream, they grabbed headlines as disruptors to the traditional financial advice industry. Many questioned whether or not these platforms would replace traditional advice relationships. While the advent of robo advice is having and will continue to have profound effects on how financial advice is delivered to individuals, it is not disrupting the traditional advice industry in the way that many expected.

The Expansion of Advice is not a Replacement of Traditional Advisors

Although robo advice platforms are becoming increasingly complex and better at servicing individual clients, they have yet to convert many clients with existing traditional advice relationships. While independent robos like Wealthfront, Betterment, and Personal Capital are still aiming to disrupt traditional advice, incumbent firms are positioning robo advice products to service client segments that are separate from traditional advice. In fact, major incumbent firms are positioning robo advisors to serve previously underserved areas of the market. Specifically, they target clients who do not have enough assets to be attractive to traditional advisors and self-directed investors.

For consumers, this means that they will be increasingly presented with a robo advice option at institutions where they already have an existing relationship. It is important to understand what these products are, as not all robo advice products are created equally.  One of the largest differences between products is the level of live advice and financial planning offered.  Some products offer live advisors to all clients, others offer access to representatives to help with technical or other general questions, while some are digital-only and do not have ready access to anyone. Individuals first need to determine what level of service they are looking for and whether they have financial planning needs.  Consumers should ask questions not only about access to advisors, but whether those advisors can provide financial planning or advise on client-specific scenarios.  

However, not everyone needs in-depth financial planning, while others may be comfortable working with self-directed digital-planning tools.  Wealthfront, for example, does not offer live planning and advice but has strong online planning tools, allowing users to build robust plans on their own.  An offering that has tiered service levels can also be attractive for those who do not need significant financial planning now, but may want to graduate to a higher service level in the future as their wealth and needs grow.

More Choices and Accessibility for Individual Investors

Robo advice has dropped the minimum investment amount from the hundreds of thousands of dollars to zero at many providers.  It has also created a new tier of services available at a fraction of the cost of traditional advice.  This is a paradigm shift for consumers.  Those with less assets or an aversion to high fees no longer need to feel they must manage their own assets.  Robo advice has allowed individuals to enroll in professionally managed accounts with $10 or less.  Those just starting on their wealth accumulation journey should take advantage of these low-cost and low-minimum products.

The net result is positive for individuals. Prior to the explosion of digital advice products, consumers who did not have the wealth to be attractive to traditional advisors now have a plethora of options available to them. In fact, they likely have an option available to them at a financial institution where they already do business. The market for professional management has been greatly expanded to include the mass affluent investors and those new to investing. 

Micro-investing apps have proven successful at attracting large swaths of young clients.  Lowering the behavioral and logistical barriers to investing is helping younger generations engage with their finances.  Two independent firms stand out with their success in introducing investing to individuals who have not invested before: Acorns and Stash, both considered “micro-investing” companies, have millions of users. 


All in all, we see the proliferation of the robo advisor as deeply benefiting the investor. There are lower minimums, lower costs, and digital tools to serve clients of all asset levels. Additionally, we have not seen the robo advisor replace the existing financial advice industry, but complement existing business models by creating an offering that appeals earlier in the client lifecycle. We look forward to reporting on this exciting industry in our quarterly Robo Report.

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