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David Koenig, CFA

CFA Society Chicago hosted Rise of Robo-Advisors, the second fintech event of a three-part series. The event was held at The Standard Club on April 19, 2018, commanding a crowd of over 120 people. The event started with a keynote address and was followed by a panel discussion with thought leaders in “Robo-Advisory.” Those in attendance were able to participate in a Q&A session at the end of the event.

David Koenig, CFA, the keynote speaker, is chief investment strategist for Charles Schwab’s digital advice solutions. He helps oversee Schwab Intelligent Portfolios and provides research and analysis about automated investment advisor services. He opened with an introduction to what “Robo-Advisory” really means and provided some background on the topic as well as the agenda for the evening:

  • How technology is changing investment advice
  • Robo-Advice Landscape
  • The rise of technology in investing
  • Where the industry is going
  • Panel Discussion
  • Q&A session

Koenig continued to give a breakdown of how today’s clients interact with technology and how technology is developing in business. He explained that clients are using a variety of devices throughout the day for a variety of tasks from utilizing GPS to ordering lunch online. This attachment to technology has also become pervasive in the business environment from digitizing paperwork and payment systems to hosting virtual meetings. After highlighting the breadth of technology in our lives, he continued to discuss the types of technology we use today—such as social media, mobile processing, and automated payment processing—and what kind of technology we can expect to see in the future through machine learning algorithms and artificial intelligence.

Once the audience had an understanding of the current and prospective technology landscape, Koenig proceeded to discuss the current client experience in financial services. He brought attention to how little time the average investor spends contemplating investment decisions. For reference, he highlighted that, on average, people will spend more time deciding whether or not to take a vacation than make an investment decision. This appears to be due to customer’s lack of satisfaction with the advisory process. Customers tend to classify investment advisory as tedious, intimidating, and inconvenient. However, robo-advisory is shifting that mindset.

Koenig opened the discussion of the current robo-advice landscape by emphasizing that current models typically do not work directly with customers of investment advice. Instead, they work through traditional advisors to empower their decision making and automate redundant technical tasks. This technology has led to more sophisticated advice and asset management being delivered at a significantly lower cost. He went on highlight that this business model was developed by corporate fintech innovators such as Betterment and Covestor and validated by advisory incumbents such as Charles Schwab and Vanguard.

The discussion continued to present the different business models that have emerged over the years: the fully automated robo-only model, virtual advice using both robo and a traditional investment advisor, and institutional services. The robo-only model’s greatest advantage is the extremely low or non-existent investment minimums. The virtual advice model takes all the power of robo model and leverages the skills and experience of a financial advisor. These two models make up the current retail landscape of robo-advice. Koenig also briefly discussed institutional robo-advice in the business-to-business landscape. He highlighted the streamlined client communication and onboarding processes, automated risk profiling and account aggregation, intelligent portfolio construction and rebalancing, and the attractive interface of the modern advisor dashboard. All of these advantages have led to significant growth over the past four years alone—145% compounded annual growth to be specific.

After familiarizing the audience with current landscape, Koenig went into detail about what makes digital advice so appealing. He began by introducing many of the common myths associated with robo-advice and proceeded to break each one. First, he introduced the myth that “robo-advisors are only for millennials.” This was followed by a chart showing that, in fact, baby boomers and Gen X clients are actually the biggest consumers of robo-advisory taking up 44% and 34% of the market, respectively. Next he addressed the myths that “robo-advisors are only for less sophisticated investors” and “robo-advisors are only for small accounts.” These myths were met with examples from Koenig’s personal experience in robo-advisory where he has aided with the direction of several high-net worth and sophisticated accounts. Finally, he addressed the myth of “robo-advisors are going to replace humans” where he once again drew on his own experience to once again explain how the technology is actually used. He emphasized once again that robo-advisory is not replacing traditional advisory, but rather empowering it. His discussion of these myths was closed out by a series of metrics that displayed current investor interest in robo-advisory and highlighted opportunities to educate.

To conclude the keynote presentation, Koenig covered where robo-advisory is going. He drew attention to the fact that it is growing rapidly and differentiating across various financial service functions. He discussed how the implementation of newer technology such as artificial intelligence, chatbots, and machine learning algorithms will continue to empower and change the landscape of financial advisory by adding a heightened level of personalization to the technology. Additionally, he emphasized that he expects consumers will demand both digital and human advice; further perpetuating his message that robo-advisory will empower traditional advisory rather than replace it. He closed out his presentation with a quote from a recent Morningstar editor’s letter stating “Maybe [robo-advisory] automation will make the advisory experience more human.”

The second half of the evening featured a panel discussion moderated by Sunitha C. Thomas, CFA, regional portfolio advisor at Northern Trust, and included speakers Joel Dickson, Sylvia Kwan, and Dan Egan. Each of the panelists introduced themselves and discussed how they leverage robo-advisory for their clients.

Joel Dickson is Vanguard’s global head of advice methodology. As one of the first widely-recognized incumbents to enter the robo-advisory space, Dickson and Vanguard have focused on maximizing their advisors’ alpha, managing global portfolios, and maximizing short and long term goals for clients. They accomplish this through lowering incremental costs to attract clients and automating rules-based tasks as well as implementing continuous risk-profiling of their clients. This continuous risk-profiling is starting to replace more traditional portfolio “bucket” assignments. He also emphasized that robo-advisory has allowed Vanguard’s advisors to focus more on the advisory services by catering more to individual client preferences and goal-focused information.

Sylvia Kwan is the chief investment officer at Ellevest, a technology-enabled investment platform redefining investing for women. In her role, she is responsible for developing investment portfolios and proprietary algorithms that drive Ellevest’s investment recommendations. Ellevest is trying to bridge the investment gap between men and women as current data shows that women are substantially under invested when compared to their male counterparts. Kwan explained that portfolios are assigned through the use of a goals-based questionnaire and client engagement is maintained through a variety of communication channels including their “What the Elle” newsletter. They initially engage their clients through social media and their current community of female investors.

Dan Egan is the managing director of behavioral finance and investing at Betterment, one of the first-movers in the robo-advisory space. Betterment’s value proposition is to “connect common investors to quality advice.” They don’t assign portfolios as much as they allow customization coupled with quality education. With their current product they are working to automate as much as possible and allow their advisors to focus more time on the human element of the business. They use social media to engage clients but their primary source of engagement has been word of mouth and they maintain engagement through precise communication catered to individual clients. This communication includes sharing education on investment planning as well as market news. Machine learning is becoming an increasingly integral part of this communication process.

All of the panelists explained that their current business models are built on advisory fees and a focus on goals-based investing. Additionally, as technology continues to develop and automate the more mundane elements of financial advisory, they are increasingly seeking advisors with greater communication and people skills. The event concluded with a Q&A session.


As investing tasks become more automated will investment managers continue to be held accountable for performance? Yes, but accountability will be less focused on short-term and investment philosophy performance and more focused on goal achievement and catering to client engagement.

What has been the conversion rate from traditional to robo-advisory? While nobody could provide an exact metric, the general consensus was that it has been high, especially in more recent years.

Can behavioral coaching be coded? With enough time, yes. However, that technology appears to be in the far future and will likely not be a major impact in the next decade.

How satisfied are people with robo-advisory and how is satisfaction gauged? The success of robo-advisory platforms are measured through client surveys and the current data shows satisfaction rates are high. However, each of the events’ presenters were quick to point out that robo-advisors have yet to endure a recession.

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