Is technology making financial advisors obsolete? There are some very smart executives in Silicon Valley who are betting big that it will at least transform the wealth management industry.

Over the past three years, as brokerage giants struggled to recover from the 2008 market collapse, a handful of online financial advice companies have snuck onto the scene, backed by Internet industry heavyweights, with the aim of securing the loyalty of the future rich; those 20 and 30-somethings weaned on email, chat, handhelds, tablets and instant access to any information at any time. These are the folks who perform all transactions online, have never written a check or licked a stamp, and go to Google to check up on everything you say.

By now, you may have heard of some of these newcomers: Personal Capital, Betterment, MarketRiders, Wealthfront, LearnVest, CoVestor, MyGDP. They aggregate your accounts, use algorithms to invest, offer total transparency on their investment strategies and fees, and generally charge a lot less than a flesh-and-blood advisor in the local brokerage office would.

For now, these businesses are generally aimed at consumers on the lower end of the wealth scale—somewhere between $10,000 and $1 million to invest—but that doesn’t mean wealthier investors aren’t giving them a look. Expect similar services to creep up the investable asset scale.

“The younger firms are built on the latest technology, making them much faster and more dynamic than the infrastructure legacy firms have been cobbling together for the last 30 plus years. This is resulting in significant pricing pressure for the incumbents, naturally,” says Scott Bell, a financial advisor whose MyGDPoffers an online advice service to individual investors with a tiered pricing model.

Personal Capital, launched in September by Bill Harris, former chief executive of PayPal and Intuit, may be the service competing most squarely with traditional financial advisors. It marries high tech with high touch. Customers sign up online for account aggregation and tailored portfolio management, monitoring and rebalancing while a licensed financial advisor, often with a CFP, is assigned to each account. The firm won’t yet disclose how much it manages in assets, but says investors have registered $4 billion in aggregated assets on its platform. Personal Capital charges an annual fee on assets for advice of 75 to 95 basis points, depending on account size, and courts clients with a minimum of $100,000.

But Harris says he believes his service “is a fantastic solution for people with as much as $5 or $10 million,” and in the nine months the firm has been operating it’s already accumulated some accounts with that much or more. (He declined to say how many.) These are folks who don’t want to have to drive to the bank or make an appointment—they’d rather call their advisor, have a video chat or send an email.

“We see our competition as the Merrill Lynches of the world,” says Harris. “That might sound crazy—how could a little startup compete with a Merrill, or a Fidelity, or a Charles Schwab? They have thousands of employees, trillions in assets, huge technology stacks and a long history. I would counter that such a legacy is actually a hindrance to their success. While storied firms, none of them have been able to keep pace with consumers’ expectations of what investment technology should look like today…and unless you’re a multi-millionaire, they don’t have the time or inclination to create a truly customized, personalized strategy just for you.”

The real beauty of Personal Capital’s service is its mobile app, says Richard Crone,who heads financial industry researcher Crone Consulting. Good mobile technology is essential to any successful 21st century business, but it’s an arena where commercial and retail banks have fallen behind, he says.

“There will be more customers connecting to their bank through a mobile banking application than any other channel in the industry, more than wired Internet itself or a laptop, a call center, a branch, in at most, two years,” he predicts. “It’s growing five times faster than Internet banking was.” And Personal Capital has “a rock star team of people developing a mobile set of services, because they know that will be the primary interface. Their iPhone app is stunning,” he says.

Like Personal Capital, Wealthfront is stacked with SiliconValley talent. It’s backed by Netscape founder Marc Andreessen and Jeff Jordan, the former president of PayPal. CEO Andy Rachleff is also a partner at venture capital firm Benchmark Capital. The firm manages customized diversified portfolios for clients using an algorithm based on modern portfolio theory and it targets Silicon Valley’s new rich, with an asset minimum of $10,000 in investable assets. Investors get free service on the first $25,000 in assets and pay 25 basis points on all assets beyond that. Users have already invested over $200 million with the company. Article after article has been written about Wealthfront’s upstart challenge to Wall Street in the mainstream press, but Rachleff declined to be interviewed for this story, saying our audience is not his target market. 

Betterment, whose outspoken CEO Jon Stein has made headlines with his financial advisor bashing, also offers rock-bottom fees—between 15 and 35 basis points—but unlike Wealthfront it charges less for more assets. Betterment seems to be doing all right: so far it has about 12,000 clients and close to $50 million in assets under management. Both Wealthfront and Betterment aim to make it easy for the client to do asset allocation, with automatic balancing of portfolios based on a client’s risk profile.

All of these firms keep costs low by automating the application of their investment model and reducing the fixed costs of branch office space. Research suggests that automated investing models do better than human beings anyway. Packaged programs outperformed financial-advisor managed programs in six of the eight time periods between 2008 and 2010 studied by Cerulli Associates. In 2008, packaged portfolios controlled by a home office lost 30 percent on average whereas financial-advisor managed portfolios lost 34.7 percent. Largely, this is because tightly controlled managed accounts allow for less panic-driven turnover, say Cerulli analysts.

Meanwhile, a controversial recent studyby the National Bureau of Economic Research suggested that most brokers and financial advisors are biased towards offering clients investing strategies that will make the advisor the most money, often to the detriment of a client portfolio. If an algorithm can do a better job of investing client money, then what are investors paying for? Unbiased advice, says Bell. “And right now, most of the investable assets in the U.S. are being held with companies where that’s specifically, structurally, not being offered. That’s a huge disconnect in the marketplace, and an opportunity.”

As for real estate, even Personal Capital, which invites clients to come to its offices in San Francisco if they want a face-to-face experience, doesn’t plan to set up retail branches around the country. At most it may add additional financial advisors located in different “remote” offices, says Harris.

The beauty of the online model is also that mistakes can easily be fixed. Most of these new firms are nimble enough to rejigger their offerings to fit evolving market demands. WealthFront, for example, began a few years ago as KaChing, a Facebook game that allowed investors to virtually manage stock portfolios. But users wanted more than just stock funds, so Rachleff changed course.

“I think they’re tweaking their models,” says Blake Darcy of Formula Investing, which offers an equity-only managed account offering through the web based on hedge fund manager Joel Greenblatt’s value investing strategy. “WealthFront is quite different from where they started, CoVestor, too. Betterment, being a newer player, is sticking to what it started out with.”

Formula Investing has also overhauled its model since launching in late 2009. In the beginning it offered both a self-managed account and professionally managed account option. But it’s discontinuing the self-managed option this month because it found that everyone wanted Formula Investing to take care of business. The firm also raised its minimum from $25,000 to $100,000 and, now that it has a track record, is beginning to attract clients with more than $1 million to invest.

None of this is to say that very high-end individualized financial advice will disappear. It won’t. There will always be those multi-millionaires who want a devoted full-time personal financial advisor—even among the youngest and most Internet-savvy. Just consider Facebook CEO Mark Zuckerberg, for instance, who works with Divesh Makan, a former Morgan Stanley advisor who now runs Iconiq Capital. Makan’s clients include executives at a number of tech upstarts, and his M.O. is to come calling when they’re still messing around in someone’s basement. 

Still, the rock-bottom cost of online services will put pressure on fees at a time when wealth management profit margins are already getting squeezed. Before the financial crisis, private banks generally earned revenues of 1 percent on client assets. This translated into a margin of about 0.35% of client money under management. But fees on service in the wealthiest countries have fallen some 10 to 20 percent since 2007-2008, according to a recent article in The Economist. Plus, online advice providers aren’t the only ones competing for this mass affluent business: direct investment sites are gunning for it, too.