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Is the future for robo-advisors bright ... or a bust?

The growth of automated investment advice platforms — also known as robo-advisors — is a top theme of just about every conference in the advisory industry these days. What's more, pundits are debating whether it's the next big thing in investing.

And why not? The websites offer increasingly sophisticated tools to build and manage a diversified investment portfolio, they're easy to use, and they cost about a third, or even a quarter, of what a typical human advisor charges. They look like the kind of disruptive technology that could undermine the traditional relationship between investors and financial advisors.

Robot and human robo advisors
Javier Pierini | Getty Images

By the sheer numbers, however, the dozens of venture capital-backed firms now offering software-driven advice are a non-event, according to advisory industry observers. Collectively, the robo-advisors managed less than $20 billion in assets at the end of last year, according to consulting firm Corporate Insight.

As a point of reference, total U.S. retirement assets reached $24 trillion as of June 30.

That's just a sliver of the financial wealth managed by investment advisors in the U.S. The surprise is not how fast these platforms have gathered assets in the last five years, but rather that they haven't had more success.

"When you model disruption in an industry, this isn't what it looks like," said Michael Kitces, a certified financial planner and partner with Pinnacle Advisory Group. Kitces was an earlier skeptic of the notion that robo-advisors were a competitive threat to human advisors. "At the end of the day, a balanced mutual fund of low-cost exchange-traded funds is not a very disruptive technology."

Kitces believes the market for robo-advice is not investors currently working with a human advisor, but rather those who are handling their investment management on their own. That's one good reason that Schwab and Vanguard, the two biggest firms serving do-it-yourself investors, have launched their own automated advice platforms.

Lluís Real | Age Fotostock | Getty Images / Jose Luis Pelaez | Iconica | Getty Images

Thanks to their nationally known brands, Schwab's Intelligent Portfolios and Vanguard's Personal Advisor Services are quickly surpassing market leaders such as Wealthfront — the first robo-advisor to top $1 billion in assets last year — Betterment and FutureAdvisor.

As cool as the robo-offerings are, the technology won't make them successful in the market, observers say.

"The issue is not about automated investment management," Kitces said. "It's about how you get a million people to trust you with their money. The only way the robo-advisors will work is if they solve the marketing issue."

To that point, 42 percent of financial planners polled in a recent industry study said they do not plan to utilize robo-advisor technology in their financial-planning offering to clients.

The study, "Financial Planning in 2015: Today's Demands, Tomorrow's Challenges," was conducted by the Financial Planning Association and polled 771 financial professionals.

When asked how robo-advisor technology will be integrated, respondents discussed using it as a supplement to the advice they provide, outsourcing investment management to technology to focus on the value-add side of the business, creating a segmented service offering and targeting younger or cost-conscious clients.

"Financial planning is a process that involves much more than a simplified approach in allocating one's investment portfolio," said Edward Gjertsen, a CFP and FPA president. "With that said, it stands to reason that some practices may be considering robo-technology to augment current offerings, especially for younger clients and those with simple financial situations."

Meanwhile, several financial services firms have indeed shifted gears and are making their platforms available to financial advisors to offer clients through the custodians.

Fidelity Institutional, for example, has partnered with Betterment and LearnVest to make those services available to clients of the thousands of advisors who use Fidelity as their custodian. Pershing Advisor Solutions partnered with Motif Investing earlier this year.

"Technology has enabled a totally different experience for the next generation of investors, who are justifiably more cynical about the value of financial advice." -Ron Carson, founder and CEO of Carson Wealth Management Group

With more than 200 robo-advisors now in the market — most with no assets and little funding — a shake-out is coming, suggested Steve Lockshin, founder of Convergent Wealth Advisors.

"Some of the robo-advisors will be acquired, and some will go public, but most of them will go away within the next five years," said Lockshin, who was an early investor in Betterment and helped broker its deal with Fidelity.

Lockshin doesn't discount the power of technology or the ultimate effect that automated investment management software will have in the industry. The robo-advisors have raised the bar as far as the digital tools that consumers will demand from their advisors in the future.

"Computers are far better at executing the Nobel Prize-winning strategy of investment diversification and rebalancing than people are, and they're much better at tax-loss harvesting, too," Lockshin said. "If an advisor is just doing asset allocation and fund selection, their business will probably disappear a few years from now."

Ron Carson, a CFP and founder and CEO of Carson Wealth Management Group, thinks the robo-advisors present a fundamental challenge to the value proposition of financial advisors.

If an investor can get a globally diversified investment portfolio that automatically rebalances, and get access to a lot of cool digital tools for 25 basis points, why would they pay 1 percent or more for a human advisor?

"A good dose of paranoia is healthy," said Carson, who also runs an advisor coaching firm Peak Advisor Alliance. "This market is changing."

Carson added: "Technology has enabled a totally different experience for the next generation of investors, who are justifiably more cynical about the value of financial advice."

Carson has been spending millions to upgrade his firm's technology to give clients the ability to slice and dice data and test different investing scenarios. He's also planning to overhaul the way his firm interacts with clients and charges them for services.

"We want to give clients the ability to pick and choose components of the services we offer," he explained. That could mean using robo-like tools in some cases and giving access to a human advisor when the client wants. "We're trying to figure it out."

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He calls it the "bionic advisor" proposition — a new buzzword in the industry describing advisors who make use of the best technology to serve their clients. It would give people the digital experience they want while also providing the ability to interact with a human being, which many investors also still want.

Not every advisor — most notably, solo practitioners — will be able to make the necessary investments in their business to compete in the future. However, Carson believes the evolution of financial technologies presents advisors with a huge, albeit risky, growth opportunity.

"There are going to be some winners and a lot of casualties," he said. "The robo-advisors are the start of a creative destruction process highlighting what's possible in the future."

By Andrew Osterland, special to CNBC.com