The emergence of automated investment advisors, known as robos, are facing stiff competition from traditional advisors, who are leveraging technology and making strategic acquisitions.

The value proposition of “robo” advisors, which are seizing trends related to the democratization of technology and changes in investor behavior, is not a threat to the high-end wealth management sector as these players are constrained by the very factors that make them so desirable, new research suggests.

Although robo algorithm-driven platforms combine a “state-of-the art” user experience with low fees, transparency and low minimum levels of investment, they have limited product offerings. Additionally, Millennials may not be as “sticky” as their needs become more complex, and their low-fee model forces them to focus on small, less profitable accounts, a new report by TABB Research said.

“Robos enjoyed a first-mover advantage over traditional firms due to better customer-facing technology, capitalizing on social media, smartphone and tablet technology to gather assets quickly, taking advantage of non-traditional venues such as crowd-sourcing, online ads and word-of-mouth,” said Marlon Weems, co-author of the report with Alex Tabb.

However, “traditional” firms are fighting back by making significant upgrades, such as Schwab's free service and Vanguard's hybrid service with near-robo pricing, while others have partnered or made acquisitions (BlackRock is buying San Francisco, CA-headquartered FutureAdvisor, for example).

The report also said that while robo advisors might be attracting venture capitalists and media coverage, they do not hold the “high ground.” As they look to grow beyond their Millennial-focused business model, TABB expects these players to face fiercer competition and high client-acquisition costs.

“We anticipate a convergence of the traditional and robo approaches with existing powerhouses opting to acquire the most promising robo platforms or build and incorporate similar models into their client services,” Weems added.

Despite industry concerns over the potential for “robos” to dilute the value of in-person financial advice, more and more research indicates that advisors are rising to what has been widely portrayed as a challenge. In fact, many firms are embracing the competitive pressure, which is in many ways good for the industry, Cerulli Associates said in April.