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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:

Jobs at Wealthfront
jobs at Betterment
jobs at Motif
jobs at rebalanceira

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.”



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