What exactly to make of the big robo-advice deal that, according to Reuters, Financial Engines and Wells Fargo are nearing

Much ado about nothing…

Playing the same losing game by scaling to a larger audience doesn’t make the game any more compelling.

I suspect the FE peeps will realize this down the road.

FE is unique among Robos because it has scale. It has scale because it is focused on a few concentration points of very large assets—large 401(k)plans. FE is uniquely qualified to solve large plan problems – - they advise and manage from company stock among other distinctions. This is just the next logical step in a killer distribution strategy. FE is successful because it has data connections with 7 of the top 10 plan administrators. This would make it 8. Think of it this way . . . Administrators with large plans are like big affluent zip codes: large plans are like great malls: great malls are same-store-sale sources. This will only be interesting/dramatic if Wells Fargo and FE collaborate to redesign the 401(k) for plans with less than 1000 participants. Say complete auto including auto deferral to managed solution, with ability to 'opt out’ for the truly self directed. Otherwise, this is there excellent 'Business as Usual”

This is a very powerful manifestation of a relentless evolution to faster, better, cheaper individualized advice. Institutionalized fiduciary duty is creeping closer, while the brokerage industry is trying to figure out if it wants to be in the advice business despite Supreme Court rulings and Presidential Executive Orders that blunt Brokerage Lobby influence over Congress. Note in the free market Financial Engines has garnered $895 billion in 401 (k) assets versus Wells Fargo’s $325 billion.

We don’t think of modern medical technology as Robo Medicine, nor should we think that a higher level of continuous comprehensive counsel in support of fiduciary duty as “robo advice”. It is just a far higher level of advice better executed in ways not otherwise humanly possible.

Wells Fargo understands robo advice in the context of empowering a higher level of counsel at lower cost. In three years, every brokerage firm in the industry will be taking full advantage of robo advice or they will be left behind because in a free market it is in the consumer’s best interest. Robo Advice is not in lieu of brokers but empowers brokers to provide a far higher level of counsel at lower cost than can be humanly processed—just as physicians use modern technology.

The issue is whether broker/dealers have the presence of mind to formally acknowledge brokers render advice and have fiduciary duties to fulfill or whether the next generation of advisors render brokers obsolete.

SCW
Stephen Winks

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