Over the past year, the financial advisory world has witnessed the emerging rise of the “robo-advisor” – technology-driven investment advisory services that substitute “expensive” humans for low-cost highly-scalable software and algorithms that seek to deliver much of what advisors do with respect to portfolio construction today, but at a fraction of the cost.
Underlying the robo-advisor model, though, are insights that are relevant to any financial advisory firm. For instance, the core building blocks of robo-advisors – a systematized investment process, supported by programmed technology automation to implement the portfolio – is not actually unique to robo-advisors at all. Any advisor – human or robot – can use these tools, and they already exist!
In fact, it turns out that many financial advisors already deliver everything that robo-advisors do, and more; advisory firms have been increasingly shifting to model-based portfolios for years, and “intelligent” rebalancing software that replicates virtually everything a robo-advisor already does has been around for nearly a decade, as has been shown indirectly by Morningstar’s “gamma” research. Which means in the end, robo-advisors may be less of a threat to traditional advisors, than simply an acknowledgement that inefficient advisors that don’t systematize and utilize technology will be increasingly threatened by those who do – whether robot, or technology-augmented human.