Skip navigation
ldquoBut the biggest problem we have in this industry is inertiardquo said Steve Lockshin the founder of Convergent Wealth Services
<p>&ldquo;But the biggest problem we have in this industry is inertia,&rdquo; said Steve Lockshin, the founder of Convergent Wealth Services.</p>

FROM IMCA: Adapting to a Robo Universe

It would not be a conference for wealth managers without a panel on robo advisors, where forward-thinking industry practitioners try to convince a skeptical audience that their conventional business model is being disrupted faster than they realize.

“But the biggest problem we have in this industry is inertia,” said Steve Lockshin, the founder of Convergent Wealth Services. “Digital is the topic de jour, but everyone goes home and does exactly what they were doing before.”

And what they were doing before does not include figuring out how to adopt the client-facing digital investment platforms into their practices. Lockshin asked the packed room how many had even gone to the websites of the current roster of robos, including Betterment, WealthFront, Personal Capital or SigFig. By his estimation, less than 4 percent of the audience raised their hand. Lockshin urged all advisors to sign up for a robo account. “Otherwise, you aren’t going to know what it is.”

Steve Welch, the founder of Unconstrained Thought and former chief investment officer of Fortigent, said it took him all of 10 minutes to sign up for a WealthFront account and get a diversified portfolio of seven to 10 ETFs. He gave the portfolio to his researcher and asked them to back test it and compare the results to his team’s portfolios.

“And the answer is, it did just fine,” he said. More importantly, it’s cheap. Smart diversified investment portfolios can be had for 10 to 35 basis points. “The takeaway is not that we’re bad. But if advisors are charging clients 1 percent for a basic investment portfolio, they had better be prepared for when that client comes in and asks why they are paying 90 basis points more for it” than they could with an automated portfolio.

“It has set a market clearing price for what commoditized advice is all about,” said Jud Bergman, the CEO of Envestnet. “It’s a disruptive technology, but we like that. It will be beneficial for the advisors that embrace it. It’s a holistic platform, not a product, and that’s what clients want.” For advisors, “they are helping profile and engage the client in nifty ways.”

“But it’s a mistake to think this is only an ETF solution,” said Welch. “That’s where we are today, but the next iterations will be better.”

“It’s also a mistake to think this won’t broach tax and estate planning,” said Lockshin. “Those are rules-based processes,” and therefore better suited to the algorithms, he said.

“The common belief is those guys aren’t making money, so they are not a threat to me. But they are disrupting your pricing power, and you have to react to it,” said Lockshin.

The next evolution will allow investment managers to create better portfolios in something similar to a unified managed accounts; the ability to hold fractional shares and the tax-basis of the underlying securities; “The technology will evolve to make a ‘mutual fund of one’ possible,” said Bergman.

“As this technology evolves, it drives commoditization and customization to specific client bases,” said Welch. Advisors will need to master marketing and customer service as their differentiators. “That’s a very different business than a bunch of CIMAs (Certified Investment Management Analysts) sitting around building portfolios.” 

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.