As robo advisors increasingly jostle for market share, a reoccurring question has focused on how firms will differentiate their offerings.

Those that can clearly communicate their platform's risk tolerance determination rather than hiding it in fine print will gain a competitive edge, particularly among savvy young investors, a new report suggests.

They will be able to "resist the ongoing trend to the commoditization of portfolio management, and indeed, command a price premium," writes Will Trout, head of wealth management research at Celent.

"As for a price premium, I'd say 30 or 40 basis points would be about right," he notes in an email. "Add that to the usual robo advisor fee which is around 25 basis points, and you get a fee that is above the standard robo price, but significantly less than the 1% a standard advisor would charge."

Some firms have already adopted the tactic to cull prospects from the younger investor pool, Trout adds.

"The concept of portfolio risk is not intuitive to the lay or novice investor," he says. "That is why firms like European platform Scalable Capital are targeting more sophisticated young investors, with whom such a concept will resonate."

By Suleman Din
The full article first appeared in Financial Planning on August 9, 2017.