Traditional Advisers Can Learn From ‘Robos’
Automated portfolio management platforms, or “robo-advisers,” are rapidly winning a sizable share of traditional advisory clients—from high-net-worth retail investors to defined contribution (DC) retirement plans.
These platforms’ presence in the marketplace has reached the point where financial advisory firms can no longer just brush them off, according to research from Hearts & Wallets. Traditional firms should instead focus on learning from the successes and failures of early robo-adviser entrants and look for opportunities to take the best of both approaches, a new white paper from the firm argues.
The paper looks at a number of recent developments in the robo space to make the case. One is the recently released Fidelity GO, which offers a mixture of algorithm-based investment advice and insight from human advisers. Another such hybrid service is Vanguard’s Personal Advisor Services —since its launch in May 2015, it has accumulated more than $12 billion in assets to become one of the leading robo players. The biggest independent robo-adviser is Betterment with $6 billion in assets—an increase of 300% since the start of 2015.
According to HelloWallet, a consensus is building that consumers prefer these services, because they offer user-friendly and personalized platforms to manage and track assets, as well as transparent fees. Not surprisingly, robo-advisers attract tech-savvy Millennial investors who value responsive design, Hearts & Wallets found. Citing its own 2015 focus groups, the firm quoted one investor who said he liked, for instance, that “Betterment showed you a preview of what the interface looks like that you’d actually be dealing with.”
Another said, “I like Personal Capital’s dashboard tool a lot. I think it’s just a really nice, clean interface, and it also tracks your net worth, just like Mint, which is, for me, the most useful thing right now.”
Being able to aggregate and monitor cash flows is an emerging client need that robo-advisers excel at meeting, says another Hearts & Wallets report. Fifty-one percent of respondents said they needed help in this area.
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