The answer is more automation, not less

The online retirement advice giant Financial Engines just published a report called The Human Touch highlighting the role of the real-life advisor in delivering client counsel. Among other things, the report found that 54% of self-guided 401(k) investors have an interest in working with an advisor. While I won’t gainsay this figure, I’m loath to extrapolate stated interest into willingness to pay. Indeed, the report acknowledges cost concerns as the primary obstacle to investor engagement. That said, it’s hard to argue with success, and Financial Engines has accrued more than $100B in assets by combining automated portfolio construction with access to a (remote but real life) advisor. Other firms, like Personal Capital, also have done well by this model. Today it’s a rare voice that will argue the appeal of the hybrid “robo-human” platform. The model speaks to the needs of contemporary investors, who are tech friendly but want to get their advice in person. The rub for firms like Financial Engine and Personal Capital is that real life advisors cost money. The advice they deliver, moreover, is not easy to scale. That’s a problem for firms whose core service—automated portfolio construction—is under increasing price pressure. To avoid commoditization, Financial Engines and other hybrid firms will need to move out the advice value chain and automate decision making around complex areas like de-accumulation and wealth transfer. A human being can still filter or tweak the advice, but automation will be the way to drive scale.