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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.