Robo-advisors have yet to prove their worth: Analysts

If you're expecting the new crop of online investment advisory services to do to traditional financial advisors what websites such as Orbitz and Expedia did to travel agents more than a decade ago—i.e., put many out of business—you may be waiting a while.

These so-called robo-advisors have not attracted many assets so far, and several industry observers say they haven't shown investors why they're a better alternative to personalized human financial advice.

"They're high-tech and they're cheap," said certified financial planner Michael Kitces of Pinnacle Advisory Group. "That's great if I'm buying a cell phone, but not if I'm entrusting my life savings."

Robotic investing
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The term robo-advisors refers to a group of online advisors that use computer algorithms instead of costly financial advisors to make portfolio recommendations. The portfolios are constructed of low-cost, passive exchange-traded funds. Fees typically range between 25 basis points of assets under management up to 95 basis points. The industry standard for financial advisors is 1 percent of assets per year.

Robo or human?

Robo-advisors are still in their infancy. Despite a growth rate of more than 100 percent over the last year, the assets managed by robo-advisors were still only about $4 billion as of October, spread out over 13 key players, according to consulting firm Aite Group.

To put that in perspective, consider that the Vanguard Group, the country's biggest mutual fund company, alone manages assets of $3 trillion. (Yes, that's trillion with a T.) And there's not much consumer awareness about robo-advisors. A recent Hartford Funds survey found that only 11 percent of respondents had heard the term.

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But that's not to say robo-advisors won't play a role in changing how portfolios are managed and how much investors are willing to pay for it.

"They are disruptive to the [traditional] advisor that's been selling a standard ETF portfolio and charging 1.5 percent without providing a lot of other value," said Sophie Louvel Schmitt, a senior analyst with Aite Group.

For most of their history, robo-advisors have benefited from a bull market. But industry observers wonder what might happen if markets turn mean.

"People only care about their advisor when they're losing money," said David Blanchett, head of retirement research at Morningstar Investment Management.

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Traditional financial advisors prove their mettle most when markets dive, observers say.

"What will be there keeping clients from making bad decisions?" he said. It might be easy to delete an email from a robo-advisor beseeching you to stay the course, not so easy to ignore an advisor bearing the same message in a phone call.

The Big Three

The robo-advisor space is dominated by the "big three" firms Wealthfront, Personal Capital and Betterment. Each targets a different demographic and provides a slightly different service.

Wealthfront, the largest, has a niche market with Silicon Valley techies. The firm works with Twitter employees, for example, helping them unload their stock options slowly and then reels those customers in for more comprehensive portfolio-management services provided digitally.

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Personal Capital, meanwhile, helps users aggregate their banking and investing accounts into one view. The site—started by Bill Harris, former CEO of Intuit and PayPal—then uses computer models to analyze the customer's overall net worth and recommend tweaks. That introductory service is free.

Those with investable assets of at least $100,000 can then access a real financial advisor remotely. The firm recently introduced a high-net-worth service for clients with $1 million to $10 million in investable assets.

Betterment targets Gen X and Gen Y investors working on several financial goals all at once, such as retirement, vacation savings and an emergency fund. The firm's algorithms create model portfolios of low-cost ETFs and then make rebalancing automatic to keep the asset allocations in line.

"If someone can do it for 30 basis points and you're charging 100, then you're going to have to show why you're worth it." -John Anderson, managing director, Practice Management Solutions Team at SEI Advisor Network

Recently, a handful of big financial services companies have announced that they're getting into the robo-advisor game themselves. For example, Schwab's Intelligent Portfolios provide asset-allocation models based on questionnaires and are available for free using Schwab's own ETFs.

Vanguard Personal Advisor charges 30 basis points for clients with more than $100,000, providing a combination of digital investment management and personalized financial planning with an advisor. And Fidelity recently announced that the advisors on its platform will soon be able to use Betterment's technology for their clients.

These firms may be able to beat the robo-advisors at their own game—if Vanguard Personal Advisor's $4 billion in assets is any indication.

"For a Schwab client, it's a no-brainer," Aite's Louvel Schmitt said about that product's appeal. "Why sacrifice 25 basis points to Betterment if you're going to get it for free?"

Advisors take notice

Even if robo-advisors aren't turning the financial advice field on its head, their impact is still being felt. Most importantly, they're shining a light on fees and transparency, a move that began after the financial crisis but is only gaining steam, industry experts conclude.

"If someone can do it for 30 basis points and you're charging 100, then you're going to have to show why you're worth it," said John Anderson, managing director of the Practice Management Solutions Team for the SEI Advisor Network.

Read MoreRobo-advisors: Friend or foe?

That's not to say that advisors can't justify their fees; they just need to be more clear about what they're offering in addition to investment management, Anderson said.

He believes the current advisor business model obscures what clients are paying for.

"People value advice, and they value personal relationships, and you are charging for assets under management," Anderson said. "It makes no sense to me."

—By Ilana Polyak, special to CNBC.com