Roboadvisors' 10 Dirty Little Secrets

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Alex Pape, CFA Roboadvisors’ 10 Dirty Little Secrets June 2014 1

Transcript of Roboadvisors' 10 Dirty Little Secrets

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Alex Pape, CFA

Roboadvisors’

10 Dirty Little Secrets

June 2014

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Let’s talk about

26 companiesin

25 minutes.**Maybe.

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What is a roboadvisor?

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What is an advisor?

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Anatomy of an advisor

Advisor

Custodian

Broker

Subadvisor

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Example: Traditional advisor

Advisor: Morgan Stanley

Custodian: Morgan Stanley

Broker: Morgan Stanley

Subadvisor: Morgan Stanley

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Example: Roboadvisor

Advisor: Wealthfront

Custodian: Apex

Broker: Apex

Subadvisor: Vanguard

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10 Dirty Little Secrets

According to me.

Roboadvisors’

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#1: Fees are plummeting…

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#1: Fees are plummeting…

…but it’s not just about fees.

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#2: Convenience is a tough competitive advantage to sustain.

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Typical funnel

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#3: This is not a winner-take-all market.

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RIA Industry AUM

Traditional RIAs Financial Engines All other roboadvisors

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#4: Best Buy is to Amazon as Roboadvisors are to ________.

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#4: BestBuy is to Amazon as Roboadvisors are to ________.

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#5: Willingness to take daredevil regulatory risks is a real advantage.

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#6: Nobody knows what will happen when the market drops.

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S&P 500

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#7: Nearly all roboadvisor customers did not previously have an advisor.

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#8: Number of roboadvisors that are cash flow positive?

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#8: Number of roboadvisors that are cash flow positive?

Zero.

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#9: Elegant algorithms don’t remove the problems with MPT.

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#10: SF is not demographically representative.

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#10: SF is not demographically representative.

(Not even close.)

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Fin.