Will Robo-Advisors become the New Financial Adviser?
Today’s Financial Adviser is becoming today’s Robo-Advisor.
The ranks of today’s Financial Advisers will most likely be significantly reduced in the next 5 to 10 years and possibly much sooner. Instead of visiting with your local adviser you will be managing your money using your desktop, laptop or mobile phone.
Over 1 million B2B sales jobs will lose their jobs to self-service e commerce by 2020 according to Forrester Research, a reduction of 20% of the current workforce.
Similar changes are already coming to the number of US financial advisors whose numbers fell for the fifth straight year to 285,000. The industry has lost more than 39,000 advisers, about 12%, since its peak in 2008 according to the Boston based research group Cerulli Associates. Nearly half of the current financial advisers are over the age of 55 and Cerulli expects about 100,000 of today’s FA’s will retire in the next 10 years.
The growth in the financial services industry is coming from the Wealth Management sector where most earn fixed annual fees based on total assets managed. However most wealth managers want clients with at least $500,000 or more to invest and these minimums are increasing. JP Morgan/Chase’s Wealth Management Group, in March 2016, raised their minimum to $10 million dollars.
The reason for these changes is money. Everyone wants to make more money and to spend less in fees. As a result we have seen the rise in discount brokers like Ameritrade and E*Trade. As brokerage commissions have been reduced so have commissions for Financial Advisors.
This squeeze has made it far more lucrative for FA’s to become Wealth Managers and to earn annual fees for managing client’s money and they need large minimums for that formula to work. Wealth Managers typically have asset management minimums of $500,000 or more. If you do not have that level of assets then a Robo-Advisor may be for you.
Enter the Computer Program: The Rise of Robo-Advisors:
If you could work with someone with a 5000 IQ who would work 24 hours a day, 7 days a week and never miss an opportunity for you to maximize profits, would you?
Welcome to the rise of automated asset management. There are a number of entrants each with different approaches.
Most offer their services for annual fees ranging from .15% to .40% of the total assets under their management.
If financial services is a market you’re interested in you will want to check out the jobs offered at these market leaders:
Some of the Robo-Advisor that are leading the market include Wealthfront, Betterment, Rebalance IRA and Motif.
Wealthfront is an automated investment Robo-Advisor service that will manage the first $10,000 of your money for free. Based in Redwood City California Wealthfront has over $2 billion dollars in assets as of March 2015. Check out Wealthfront’s jobs.
According to the Wealthfront website “Wealthfront is reimagining how people invest their money. By building an automated investment service from the ground up to put the client first, Wealthfront is paving the way for a new generation of investors to achieve their financial goals. We believe this is a once-in-a-generation opportunity to change an industry and build something new, something different, something better.”
Betterment is one of the earliest Robo-Advisor investing platforms. According to Techcrunch Betterment has over 150,000 customers who have invested over $3.9 billion with Betterment. They recently raised $100 million dollars to build their business.
According to Betterment’s website:
“The Betterment portfolio is designed to achieve optimal returns at every level of risk. Through diversification, automated rebalancing, better behavior, and lower fees, Betterment customers can expect 4.30% higher returns than a typical DIY investor. Featuring Tax Loss Harvesting Our Tax Loss Harvesting systematically finds embedded capital losses to lower investment taxes and increase after-tax returns.”
Motif is another Robo-Advisor trading platform “built around you and your insights.” Here is how they describe their approach to the business:
“.. we created a concept-driven trading platform that allows you to act on your investing desires—whether it’s a hot trend like “robotics revolution,” a trading strategy like “buy the dip,” or an investment style like “Ivy League endowment.” We make it easy to act on these concepts by turning them into motifs—intelligently weighted baskets of up to 30 stocks or exchange-traded funds. And you can do it all for just $9.95 per motif.”
rebalanceira focuses on your IRA account. Many of us set up those accounts and then years later wonder why the returns are so low. At rebalanceira they focus on maximizing your IRA account assets with lower fees (about .7% year). Here is what their website says:
”Rebalance IRA manages your retirement investments with some of the lowest fees in the industry. In fact, we can save you on average 45% to 72% in annual fees. Because of the miracle of compounding (see below) even small reductions in fees can make a big difference in the size of your retirement nest egg.”