you feel dumb about investing, maybe a robot can do it
fact, thatís what traditional investment advisers are
worried about as more flesh-and-blood investors turn to
computer-driven "robo advisers."
clients tend to have some money to invest but generally
are not rich. Theyíre drawn to no-frills, inexpensive
services. You donít visit robo advisers in an office,
and you wonít have a personal relationship if you need
you answer questionnaires on your computer, tablet or
smartphone to give the software a sense of the size of
your risk appetite, when you might need the money and
whether the money is for retirement or something else. A
computer churns the data and spits out an answer on what
funds you should use and how much to put into each, your
will also move money from a fund if an investment
becomes overexposed, a process called
"rebalancing." Rebalancing usually happens
once a year but can be done more often.
kinds of investment decisions can be perplexing for
individuals, and if you donít have a bundle to invest,
skilled advisers who work one-on-one typically arenít
interested. Reputable investment advisers and financial
planners usually donít find it profitable to take
clients with less than $250,000 to invest. So this
cheaper alternative has been proliferating. Some robos
accept clients with as little as $10,000.
firm A.T. Kearney estimates that by 2020, robo advisers
will be handling $2 trillion as they attract new
customers. The firm says about 20 percent of consumers
are aware of computerized investing services, including
names like Betterment, Wealthfront, FutureAdvisor, Motif
Investing and Blooom. Fidelity, Charles Schwab and
Vanguard also offer robo services.
versions of robos are still emerging as new entrees try
to get a piece of what A.T. Kearney partner Uday Singh
calls the "Uber-ization" of investment advice.
He thinks existing financial service firms ó from
wealth management firms to mutual fund companies ó
will be adopting robo services as they compete to hold
on to customers.
of the friction in the industry is apparent now.
Fidelity is pulling away from Betterment and confirmed
recently that it is testing its own robo service for
rollout next year. Fidelity is known for its actively
managed funds driven by investment experts trying to
pick the best stocks while avoiding losers. Those funds
tend to be more expensive than those offered by robo
robo advisers keep fees down by using exchange traded
funds. This allows them to keep fees below 0.5 percent;
a typical adviser charges about 1 percent. That
difference in fees may seem small, but savvy investors
know that a half of a percent cheaper leaves them with
thousands of dollars more after many years.
fund companies do have incentive to blend their actively
managed funds with robo services as active funds face
difficulty competing with cheaper index funds, which
tend to perform better than those run by stock pickers.
has noted that the competitive atmosphere in the fund
and advice business is serving individuals because funds
have been under pressure to lower fees. Even TV ads now
are emphasizing the price of advice.
pressure to keep prices down, Singh said, is driving
advisers to use robo advisers too to set up investment
portfolios for clients. That frees advisers to spend
time with clients answering questions and doing