The Threat from DIY Planning Sites Isn't Looming — It's Here
After years of dire warnings, the threat of low-cost online DIY investment sites is finally becoming a reality that traditional advisors need to confront, writes Bob Veres at Advisor Perspectives.
The sites — Betterment, Wealthfront, Bank Simple, FutureAdvisor, EverBank and many others — offer up a broad selection of online algorithms and business models that range from all-technology to hybrids offering sessions with personal advisors. Not all are fully proven, but traditional advisors should still be worried, Veres argues.
Upcoming generations of investors aren’t likely to need or want the same face-to-face advisor relationships their parents preferred, Veres says — and many say they don’t want any relationship at all, contrary to the prevailing assumptions about Gen X and Gen Y investors. Moreover, at times of market crisis, when the traditional advisor’s guidance should be key, early data show that the online algorithms yield better results.
With the industry under very public attack for high costs that eat away at returns, the online sites are also hitting hard — sometimes misleadingly — at the traditional advisory fee structure, using aggressive marketing that is “piggybacking on the post-2008 exposures of the worst excess of the brokerage mode,” Veres writes. Wealthfront, for one, eats all commissions on trades, on the argument that clients have been conditioned to respond negatively to the thought of paying commissions.
What can advisors do to fight back? The successful future model may incorporate online tools into advisory practices, Veres writes, noting that some of the start-ups, such as Goalgami, do just that. But the newcomers are certain to evolve as well, he notes, and it may take a decade for the dust to settle.