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?