The September 2015 issue of The Cerulli Edge - US Edition questions the sustainability of eRIAs in the US.

The sustainability of eRIAs may be threatened by the commoditization of their business models, as traditional firms enter the space and fee compression intensifies, Cerulli Associates has warned.

“Although the technology of the eRIA space has allowed them to scale at a much faster rate than existing traditional financial advisors, they will still need to reach end clients,” said Frederick Pickering, a research analyst at the Boston, MA-based research firm.

eRIAs will need to grow by around 50 per cent to 60 per cent a year for the next six years and gather approximately $35 billion in AuM to remain a standalone direct channel for consumer business, Cerulli predicts.

“Given the threat of commoditization within the software-only eRIA business-to-consumers marketplace and the lack of an economic moat to charge a price premium, eRIAs should consider pivoting to a business-to-business model,” Pickering said.

He continued: “The eRIA channel has created a business model that undercuts traditional advisory firms, but may lack the financial resources to compete if the business model becomes commoditized. New entrants from traditional advisory firms and start-ups threaten to commoditize the space, drive down fees, and eliminate any remaining premium in eRIA fee structures.”

Click here for an article about how, while some industry players have expressed concern over the potential for “eRIAs” or “robo-advisors” to dilute the value of in-person financial advice, existing direct firms are embracing the competitive pressure.