Robo wars: How advisors are taking on cybercompetitors

The growth of low-cost robo-advisors has made one thing clear to financial industry analysts: Human advisors who provide little more than investment advice have their work cut out for them.

"Advisors need to be more strategic about what they can offer clients," said Will Trout, a senior analyst for research and consulting firm Celent. "Stock picking is a waste of time, and allocating has become a commodity because it can be executed by algorithms. So advisors have to operate at a much higher level and [address] a client's unique situation," he said, adding, "Otherwise, what are clients paying for?"

So-called robo-advisors are automated online investment advisory services. Along with providing automated, algorithm-based portfolio management advice, some of them offer automatic portfolio rebalancing and tax-loss harvesting.

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Robo-advisors also charge less than the industry standard of 1 percent of assets managed for financial advisory services. And that, say analysts, is going to put pressure both on industry fees and on advisors themselves to justify fees that are higher than a robo's.

"It's going to require a comprehensive approach to clients that is more about planning and reassuring clients about that plan," said Bill Doyle, a vice president and principal analyst with Forrester Research. "They'll have to [focus] on the whole emotional side, which is what software cannot do."

Collectively, robo-advisors managed an estimated $19 billion at year-end 2014. While that represents a sliver of the roughly $36.8 trillion of all managed assets, industry watchers say they are poised for growth.

In addition to the nascent companies that have appeared in the robo-advisor space over the last several years, behemoth financial services companies are taking notice of their appeal and entering the business in difference capacities.

For instance, Charles Schwab launched its robo platform for retail clients in early March; a version for registered investment advisors should debut soon. The retail version comes with a minimum investment requirement of just $5,000 and no management fee.

Additionally, since 2013, Vanguard has been offering its version of robo services to clients with $100,000 or more. For an annual fee of 0.3 percent of assets under management, plus fund fees that average 0.2 percent, clients get a financial plan, portfolio management and an online relationship with a certified financial planner.

Wealthfront, one of the largest robo-advisors, charges no advisory fee on the first $10,000 of a client's assets and 0.25 percent of assets beyond that amount.

Avani Ramnani, director of financial planning and investment management for Francis Financial, said she views robo-advisors as a good development for consumers.

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"Robo-advisors are great for a certain segment of the market that is pretty underserved," said Ramnani. For young investors or those with limited assets, "it's a great way to create a foundation," she said.

"But when things get more complex, there are kind of more evolved issues that cannot be addressed by robo-advisors," Ramnani said. Ramnani, who is a certified financial planner, and her firm already do comprehensive planning for clients.

Ramnani said the existence of robo-advisors gives firms like hers the opportunity to trumpet their added value.

"We [as a firm] are very focused on our clients' specific needs, which are so varied that no computer program can possibly cater to that," she said.

Trout, of Celent, pointed out that historically, financial advisors focused on wealth accumulation and that was it.

"Today's advisors need to address de-accumulation so if, say, I live to be 95, I have enough money," Trout said.

He added that it won't just be about being able to offer a financial plan, it will be crucial that advisors take a watchtower perspective at events and developments around the globe.

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"It's about connecting discrete and fast-moving data points in a way that helps the client," Trout said. "The human mind can understand context, connect the dots and see what it means for a client, specifically for that person's situation."

He added, "That's where advisors can differentiate themselves."

In a 2014 survey conducted by ORC International for the Certified Financial Board of Standards, 81 percent of respondents said they prefer an advisor who takes all areas of their financial life into account instead of one who specializes in one or two areas. Additionally, a similar, 2013 ORC survey showed 84 percent of respondents think certifications are important when choosing a financial advisor.

The certified financial planner designation involves taking a holistic approach to a client's financial picture. Right now there are 69,000-plus CFPs in the United States, and the Certified Financial Planner Board of Standards is continually trying to boost those numbers.

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Ben Tobias, a CFP and president of Tobias Financial Advisors, said he is unconcerned about the emergence of robo-advisors' impact on his business.

"There is a place for robo-advisors; their technology is good," Tobias said. "But [people] reach a point where they need professional advice."

"The investment part is the easiest thing we [planners] do," he said. "We also deal with insurance, family conflicts and other things … so no, I'm not concerned."

—By Sarah O'Brien, special to CNBC.com