CNBC in a post today reports on Betterment, calling it "one of several relatively new online services offering investors automated financial advice and money management, often at a discount to traditional financial planners." CNBC also mentions and links to Wealthfront, Personal Capital, FutureAdvisor, Hedgeable and Covestor.
The story conclusively shows that mass media outlets have discovered the new generation of online financial advice apps that replace advisors, and it marks the opening of a new chapter in the evolution of the American consumer in personal financial management as well as in how the consumer press covers personal financial advice.
The relationship between online advice apps and the consumer press is mutually beneficial and will only become cozier in the years ahead. Advisors should understand this relationship because it will impact your ability to succeed.
When major media like CNBC report on online advice apps that replace advisors, it's a great story. The press is empowering consumers to save money—unfortunately, by firing advisors.
The consumer press is in business to make money, of course. If a reporter can write a story telling readers how to cut advice fees by using a DIY app, it makes great copy. And, without doubt, advisors not focusing on serving high-net-worth (HNW) or ultra-HNW clients are going to get less business because of increased competition from automated advice apps serving the mass affluent.
Reporters and editors at major media outlets can produce stories rating which apps are best and make these apps vie for coverage. The media are heroes for educating consumers, saving them money, and putting them in control of their financial lives.
Point is, you’ve got these two institutional forces—the press and the financial intelligentsia—united in a mutually beneficial goal that work against advisors to the mass affluent.
Over the next three years, some chunk of the mass affluent market—individuals with a net worth of up to $1 million —will be lured to use an app instead of an advisor. Advisors serving the mass affluent are seeing a shakeout slowly unfold.
Keep in mind, most of the coverage of online advice apps is produced by young reporters and editors who have little or no experience with money. Because it’s a good story, the media are predisposed to accepting that advice from an automated app is as good as going to a real live financial planner without much skepticism. They may spend little or no time pointing out meaningful differences in the quality of advice generated by one automated advice engine versus another. And they seem unlikely to mention when an advisor is a better choice than automated advice. That’s why you get puff pieces like this story on CNBC today.
Advisors must fall on the side of good sense. Individuals who need nothing more than investment management might indeed want to hire one of these online apps. But consumers who need advice a couple of times a year or more often on a financial issue other than investing—inheritance, college saving, retirement income planning, and insurance, just to name a few topics—probably want an advisor.
Advisors may want to post comments to stories like the one on CNBC. Help consumers understand who an automated investment advice app is right work for and who it can work against. Moreover, advisors want to be sure their business plan depends less on investors that can be helped by one of these online advice apps.