How to defeat the Robo advisor


The industry buzz of the last couple years about concerns over the implications of automated investment advice, “Robo-advisors,” culminated this week in a session at the Market Counsel Summit called Revenge of the Nerds. Four industry heavyweights – Duran, Michel, Weissbluth, and Stein – discussed the straightforward question “is the Robo our ally or our enemy?” A majority of the audience indicated that they believe the Robos to be a threat to the advisor client relationship. Is it?

I am not in the camp that worries that financial advisors will be out of business as a result of the rise of Robo-advisors. If the Robo’s were going to take over the financial advice business, wouldn’t Financial Engines, the granddaddy of the Robo’s, have already done that? Granted, it has $100 billion under management. But even in the retirement plan space where they play that is not an enormous market share. And if their prospects for taking over the world were that bright, their stock would not likely be down 50% since the middle of 2013.

Some advisors do have something to fear of Robo-advisors. Advisors who offer only investment advice without offering financial planning or customized niche services are the ones most likely to be replaced by the machines. Offering periodically rebalanced models of mutual funds is better done by technology. If that’s all you do, you can be worried. In fact, if you are offering some version of that service in your practice and you are not utilizing a robo-esque service like Tamarac or iRebal, your practice is a lot less efficient than it could be.

Even with straightforward asset allocation based investment management, humans have an advantage over software. As Joe Duran points out in his column last week in Investment News, human advisors have judgment and empathy, which clients really need when the situation is complex and the stakes are high. He relates the common story of many advisors who helped guide clients not to follow their worst instincts when it was difficult for them to stay the course through difficult markets. Betterment’s founder Jon Stein claims the service has gone through several downturns without client net withdrawals but that’s not true. The service was not available to the public until 2010 – over a year after the bottom of the last bear market. I find it unlikely that automated services will be able to retain many clients who panic when the markets get ugly for months, quarters, or even years at a time. It’s not like they could be like the investment advisor version of HAL from 2001: A Space Odyssey – “I’m afraid I can’t take you to all cash, Dave.”

But if you are offering financial advice (as opposed to simply investment advice) your relationships are not threatened by the robots. As Michael Kitces has pointed out several times, it still takes humans to provide the complicated and complex kind of advice that integrates investment management and goalsetting with risk management, tax planning, college funding and financial aid issues, health and long-term care decisions, and estate planning. Beyond the sheer complexity of the issues, there is the conundrum of getting the right data in the first place to be able to formulate the proper advice. In my experience and observation, the initial client interview is as much art as science.

The most successful advisors, in addition to providing real financial planning advice and having some level of specialization at something, will leverage the technology behind the Robo advisor to enhance their own offerings. In the Nerds session, Duran made the point by saying eventually all successful advisors will be “a shade of bionic” utilizing a new term that has gotten more traction than Kitces’ use of “cyborg advisors” to describe the same idea last year.

In fact, there is good reason to believe that bionic advisors will not only be the most efficient practitioners but may provide the best advice. In his wonderful new book about the history of the computer The Innovators, Walter Isaacson suggests that “the future might belong to the people who can best partner and collaborate with computers.” He describes a chess tournament organized in 2005 in which players could work in teams along with computers of their choice. In the end, it was neither one of the many grandmasters the tournament attracted nor the team with the most powerful computer that won but rather “two American amateurs who used three computers at the same time and knew how to manage the process of collaborating with their machines. ‘Their skill at manipulating and coaching their computers to look very deeply into positions effectively counteracted the superior chess understanding of their grandmaster opponents and the greater computational power of other participants ,’ according to Kasparov.[1]” Symbiosis won. Sounds like a strategy that could yield the best financial advice.

Real financial advisors need not fear competition from the robo-advisor. Recruit them onto your team. Be expert at leveraging the computer’s unique ability to store and manipulate massive databases of information and add your unique ability to strategize and you will be the advisor of the future.


[1] Isaacson, Walter (2014-10-07). The Innovators: How a Group of Hackers, Geniuses, and Geeks Created the Digital Revolution (Kindle Locations 8250-8253). Simon & Schuster. Kindle Edition.



  1. Craig IskowitzFebruary 5, 2015


    The title of this well-written article should really be, The Best Ways to Collaborate with Robo-Advisors. I agree with your premise that the most successful advisors will be the ones that can create symbiosis with their technology. Whether it is financial planning, portfolio construction or automated portfolio rebalancing, advisors are relying more and more on software to run their business. It was only a matter of time before firms decided to replace the advisors all together and go totally robo.

    I recently published an article with a similar theme called "What Robo-Advisors Can Teach Us About Focusing on the Client". Advisors will be better off learning from robos rather than fighting them. You can read the entire article here:

  2. Stephen WershingFebruary 7, 2015


    You are right – that would be more accurate. Although I doubt that most of the business will go all-robo. Better understanding the value of a human advisor and distilling it out so advisors are only delivering the portion of their services that are distinctly human will continue, though, and I agree with you that ultimately all parts of the process that can be replaced with technology will be. We will see a gradual stratification of the industry into larger, optimized firms that fully utilize technology to leverage their advisors and a large collection of smaller, lower margin firms that do things the traditional way and languish.

    I read your article, and it is terrific! I will subscribe to your posts. You have a lot of good things to say.



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