Robo Advisors: Opportunity or Threat?

Two C-level buy-side executives had different views on robo advisors and the effect they will have on the industry.

Kevin Mahn, president and chief investment officer at Hennion and Walsh Asset Management, views robo advisors as an opportunity, not a threat. For Mahn, the success of robo advisors simply indicates firms need to adjust the way they meet the needs of their clients.

"I think it's a reminder to our industry that there is a certain portion of the investment world out there that is demanding better graphical user interfaces. That wants the ability to be able to see and manage their portfolios absent of having to talk to anybody," Mahn said during his morning keynote presentation at Waters USA 2016 in New York. "I don't think it's a departure from what we do, because behind the robos there still needs to be an educated portfolio manager making the right investment decisions for them. The means by which we deliver that information to those investors is changing."

Mahn said a lot of it has to do with the younger generation simply operating in a different way. Millennials are more accustomed to staring at their phones than looking someone in the eyes, and are likely to not pick up a phone call but will immediately answer a text, he said.

"They don't like human interaction, and that's ok. We just need to understand and embrace that if we're going to actually provide investment solutions to this generation going forward," Mahn said. "Remember that as this wealth generation passes that money to the next generation, these are the tools and this is the type of approach that they want. I see it as an opportunity, not necessarily as a threat."

Shift in Business Model

Bill Murphy, CTO at Blackstone Group, had a different perspective. Murphy, who spoke on the C-level panel immediately following Mahn's presentation, said he views robos' impact being much more significant.

"I disagree with you on the passive stuff. I don't think that these robo advisors are just pretty interfaces. I think that the power of passive investing with low fees and such in the public markets is pretty significant and has clearly been a massive trend in trying to figure out, as an investor, how to truly add value to what everyone is trying to do instead of just extracting fees for stuff that people can get passively," Murphy said. "Those aren't really technology changes. That's a whole business model shift."

Murphy said that while passive managers have been around for a while—citing Vanguard as the first firm to implement the strategy—technology has made it easier and more friendly to provide that kind of offering.

The trend speaks to a bigger issue Murphy sees in the space around the speed at which innovation needs to be adopted and implemented.

"The pace is so uncomfortable for everybody. The people who are creating the technology have to run it at a faster pace than ever. The people who are consuming the technology have to consume new things that much faster," Murphy said. "You can see there is a clear line of demarcation of the companies that do it well and the companies that lag. I think that gap is only going to get bigger. And it's very hard to move big organizations and get them to think differently."