While attending SXSW, I had three epiphanies related to robo advice for wealth management that came from various demos presented by start-ups to panels of VC's and corporate types looking at the space from a lens of disruption.  

1. Everyone has a robo advisor.

2. A few brand names are starting to emerge such as Wealthfront, Betterment, FutureAdvisor, and SimpleWealth.

3. Every wealth management firm is building, renting or buying a robo.

Overall, the financial services industry is stuck in the past. In many cases, the incumbents are still using spreadsheets and contact software as the technologies for serving their wealth management clients. Most of the demos presented at SXSW basically put a circa 2010 UI/UX on top of green screens. To move forward, we need a great UI/UX but not if it's built on the same faulty foundation.

Another takeaway I observed relates to the dislocation of fees that robo's have set in motion. Many of the start-ups are hoping (praying and even begging is not too strong a point of view) to take advantage of this dislocation no matter how temporary it may be.

One outcome we could expect is a race to the bottom. This term is rooted in 19th century America when states competed to attract companies to domicile in their jurisdiction. This term has been applied to price competition among corporate competitors. Everything old is new again — even 120 years later and robo price wars are not a long term solution.

I believe that robos would be better served to focus on ways to improve returns, the customer experience and the education of their clients. Robos need to read the signals — they have not caused a shift in demographics or introduced investing to a new generation. The average robo client typically has an account with a major player, like Fidelity or Schwab, and is likely to move to the cheapest platform no matter who offers it. That does not build lasting company value.

In my opinion, what the industry truly needs is new pipes and plumbing to improve the fundamentals of the business. This would go a long way to lowering costs for them and investors.

Mike Nugent
Managing Director