Are Financial Robo-Advisers Already Doomed?

Robo-advisers are a relatively new concept in investing, but they may already be struggling to survive on their own.

Stand-alone robo-adviser companies like Betterment seem a threatened species, judging from a CNBC report.

Robo-adviser companies offer automated investment advice and management for much smaller fees than human advisers charge. (Check out “Should You Take Investing Advice From a Robot?” to learn more about the pros and cons.)

Betterment describes itself as the largest independent robo-adviser. More than 150,000 customers have invested more than $4 billion with Betterment, according to the company’s website.

But therein lies part of the problem. As CNBC sums it up:

While low-cost robo-advisor offerings such as Betterment would seem to be a major disruptor of the advisory industry, the economics underlying the stand-alone robo-advisor business model are not good.

CNBC cites Morningstar senior equity analyst Michael Wong, who believes that based on their current fee structures, robo-advisers need $16 billion to $40 billion in assets under management to break even.

Wong predicts that robo-advisers “will leave a lasting legacy in the wealth management industry.” But he adds that among stand-alone firms:

• “Just a couple” will survive.
• “A handful” will be acquired.
• “A lot” will fail.

SigFig is an example of an independent robo-adviser that has partnered with another company, traditional wealth management firm UBS.

Last month, the two companies announced that they had agreed to create an alliance that involves UBS investing in SigFig, and SigFig creating digital tools for UBS’ human financial advisers to use.

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