Guest post written by Bo Lu

Bo Lu is co-founder of FutureAdvisor. an online provider of financial advice.

Bo Lu

Last week, Brightscope CEO Mike Alfred wrote a post on Forbes.com defending financial advisors from emerging online investment firms such as Wealthfront. Betterment and FutureAdvisor. While I respect Mike greatly for BrightScope ’s work in lobbying for open government data and transparency, in my opinion his “people-are-always-going-to-want-a-human” argument misses the point.

Mike’s main thesis for the superiority of human advisors is that there are increasingly more of them. But to see why this doesn’t matter, let’s take a look at a similar business disrupted by software in recent memory: consumer tax preparation.

In 1993, Intuit bought a small San Diego company called ChipSoft for their relatively unknown product for Windows 3.1, called TurboTax. I can imagine how that must have looked to industry observers at the time, who were watching the giant H&R Block. with it’s more than 9,000 offices around the country, hire more tax preparers every day. But we all know how this story ends. Today, TurboTax serves more than 25 million American households; meanwhile, H&R Block struggles to belatedly move online, while suffering continued losses.

Innovators would be wise to be mindful of the past, as history often repeats itself from one industry to the next. From retail to banking to travel, new technologies that were initially derided as poor replacements for human beings relentlessly improve and eventually win. Today, I can’t even remember the last time I set foot in a bank and talked to a person – but I do use my bank’s iPhone app almost every day.

Until now, consumers have had little choice: the only way to get help with your investments was to find an advisor. Now, the emergence of online investment advisory firms provide another option. It’s useful to look at how this, like any other disruptive innovation, is changing the way the advisory business itself works.

You had to be rich to get an advisor

There’s a simple reason that many fee-only advisors today have minimum asset requirements: the 1% fee on my friend’s $5,000 IRA barely pays for a couple weeks of the advisor’s morning coffee. Because of this, advisors are forced to seek out ever-wealthier clients and drop their less profitable, lower net worth clients. For investors who don’t have enough money to get in the door with most advisors, the emergence of online solutions with low or no minimum investment is a boon, in an industry that was never able to help us before.

Even if you can get an advisor, they’re expensive

Hiring a human being is expensive, and we totally understand that. We want the financial advisors in our community to be able to wear nice suits and drive nice cars; they’re our friends too, after all. It’s just that I don’t want to have to pay for their BMWs out of my retirement savings.