As of late, the financial media seems head over heels in love – editorially – with the robo-advisor movement. Forbes, Entrepreneur and the Journal of Financial Planning magazines each recently featured extensive assessments of this technology. Google this topic, and one will find hundreds of websites promoting the rise of fully-automated portfolio allocation and financial management systems.

Yet, according to the 2014 technology survey for Financial Planning magazine, only 18 percent of human advisers thought that robo-advisors would represent an opportunity for their respective firms. That leaves a question mark versus an exclamation in the appropriate assessment category. Determining the effectiveness of a robo-advisor may be an easier task once the hype dies down, and the sparkle of the “latest and greatest” dims.

Or not.

If you ask leading robo-advising experts, they will say a discerning look at who is and who is not using the technology is more relevant to the conversation. They say robo-advisors are being used by firms – not just on the leading edge of the industry – but on the bleeding edge. Disruptive technologies such as these automated systems not only first cut their teeth here, but also make those early, highly profitable advances into an industry, leaving trailing coat tails that the next wave of entrants attempt to ride.

“The new technologies and the new providers are not the ones that control 99 percent of the wealth in the United States,” Joel Bruckenstein said. He is the publisher of Virtual Office News, co-founder of Technology Tools for Today and president of Global Financial Advisors, his fee-only financial advisory firm based in Miramar, Fla. “It is worth noting that we are in the very early innings of what is something of a technology revolution in the industry.”

So, just what is a robo-advisor? Is it more than a computer-based system? After all, computers have long dominated almost every industry – financial management included. What would be so different about a computer-driven program that makes financial recommendations?

In a nutshell, a robo-advisor is a way for the “have nots” of the financial world to invest as if they were “haves.” This new technology is like an expansive “one-size-fits-all” way of portfolio modeling, in which the same advice the ultra-wealthy receive from their well-paid, human financial advisors is given to the masses through an automated system receiving a significantly smaller commission.

“Historically, the problem with trying to get an FIA (financial investment advisor) was that many have minimum asset requirements of $500,000 or larger. This requirement obviously puts many FIAs out of reach for younger or lower net worth individuals,” Larry Ludwig wrote on his blog, Investor Junkie. “So these individuals had to then fend for themselves, or take the generalized advice from a financial guru like Suze Orman.”

Ludwig told his readers about three online robo-advising options he uses. These three – Betterment, Motif Investing and Personal Capital – use protocols to govern the automated investing that in reality is available to anyone to use: Modern Portfolio Theory and Efficient Market Hypothesis.

The issue is: Are you, as an individual investor, savvy enough to put these to use without assistance? Most of us would have to answer an humble, “No.”

Yet, as Ludwig point out, most of us are smart enough to do our own checkout at the grocery or big box hardware store. Perhaps the robo-advisor is a similar tool. A user makes selections based on their risk tolerance, accumulation horizon and desired drawdown, plugs numbers into the online program – much like putting goods in the cart at a store – and then heads for the check-out line.

This plays well to the millennial generation. Oddly enough, they are doing more investing at their age than their baby boomer counterparts did – even though often saddled with student loan debt.

FutureAdvisor caters to clients in that demographic. Founded by 31-year-old Bo Lu, the online investing platform is one answer to the frustration many millennials face when seeking a financial advisor who will work with their meager savings. Lu was tired of being over-looked. His creation meets the needs of young professionals who are still establishing their careers while raising young families, but who also want to at least begin an investment plan.

Lu does not feel that FutureAdvisor threatens any of the long-established financial advising firms.

“We’re increasing the pie, not just taking someone else’s slice,” Lu said. “We’re not trying to eat Morgan Stanley’s lunch – we don’t really want their multi-million dollar clients.”
In fact, it is quite possible that the bulk of FutureAdvisor clients, or clients using any type of online robo-advising system, would not even know what a Morgan Stanley is.

“Eighty percent of our clients have never had an advisor of any sort, so we feel there’s still a very large untapped market of younger investors we can serve,” he said. “Our growth is coming from two places: both clients new to FutureAdvisor and existing ones who are upgrading their portfolios.”

Lu is onto a winner. His online investing platform is slated to hit $1 billion in assets under management within the next year, based on current growth patterns. And his firm is not alone.

A late 2014 study by MyPrivateBanking.com indicates assets under management via online robo-advising systems could top $250 billion within five years. Ernst & Young, a long-time leader in the traditional form of financial advising, also released predictions that more millennials will select robo-advising over the face-to-face, hand-shaking format simply because only five percent of “live” advisors working in today’s market are less than age 30.

Yet, it isn’t just millennials opting for the online experience. Many baby boomers – still stunned and burned by the Great Recession – may gravitate toward it as well.

“I don’t think there’s any doubt that this type of experience is more likely in the long term to be attractive to the millennials, but I think what doesn’t get enough attention is that it’s not just the millennials who want this experience,” Bruckenstein said. “I mean, I used to have to go to the bank every day. I hardly ever go to the bank anymore – and I’m not a millennial. I think there are a lot of people in my age group who also want a better experience. So to the extent that technology provides a better experience, people are going to want it.”