Financial advice remains the purview of the traditional advisor and "robo" hype is merely catalyzing increased technology adoption among advisors, a study says.

“Robo advisors” do not provide advice and have therefore never really been a threat to the RIA space, says the chief executive of CLS Investments, Todd Clarke, describing the term as a “misnomer.”

The robo conversation is critically important to the industry, but perhaps not for the reasons one might assume, according to CLS, which has conducted a survey on the topic. 

Despite concerns over the potential for “robos” to dilute the value of in-person financial advice, advisors are rising to what has been widely portrayed as a challenge by intensifying their focus on technology – they just need help with working out how much to invest and in what.

In fact, many firms are embracing the competitive pressure, which is in many ways good for the industry, Cerulli Associates noted earlier this month.

“The eRIA or robo-advisor business model presents the opportunity to bring technological upgrades to an industry hampered by legacy systems,” said Frederick Pickering, a research analyst. See more here.

However, advisors “only have so much time and budget to allocate to technology” and, given the blistering pace of change, client demand for digital solutions and services can “quickly seem overwhelming,” CLS said.

Findings

CLS asked 134 independent financial advisors for their views on the current “robo-advisor” landscape, including their perceptions on what a robo advisor actually is.

Just under half of 129 respondents to that question (48.1 per cent) said they are a "low-cost, technology-based financial advisor for the masses"; 25.6 per cent said they are an "algorithmic-based program used to replace financial advisor"; 17.8 per cent said they are a "technology used to communicate with an investor while providing financial advice"; and 8.5 per cent were unclear about what a robo advisor is. 

How individual advisors define their robo counterparts will likely have an effect on the extent to which they see the trend as a business threat, if at all.

“Perhaps the most striking finding of the survey was the apparent willingness of advisors to live side by side, and even fully integrated with, robo-advisors, while still overwhelmingly perceiving them as a real or potentially real threat,” CLS said. This could in part be explained by the fact that, as highlighted above, there is no clear consensus among industry players on what robo advisors actually do.

While a remarkable 95.5 per cent of respondents categorized their comfort level with technology as “knowledgeable” to “very knowledgeable,” an undercurrent of the response set suggests that there is a limited understanding of just how dramatically technology will impact their businesses going forward.

"This apparent contradiction ultimately reveals what is the real underlying driver of the robo-narrative – advisors’ adoption of technology," CLS said.

“Robo-advisors are a misnomer, as they do not provide actual advice – that remains the purview of the traditional advisor and so they have never really been a threat to RIAs," Clarke said. "Clients want a superior consumer experience – like they would have with Amazon or Zappos – regardless of what they are trying to do, be it buying shoes or planning for their retirement and this is, in part, what the Robos provide. Using technology to help create that experience is the inevitability that advisors face."