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Computerized Investing > January 21, 2017

Top Robo-Adviser Trends, According to the Experts

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by Barbara A. Friedberg

The robo-adviser market is relatively new, but it has seen an increase in competition since its inception. As with all technology, rapid growth is to be expected. So, what does the ever-changing landscape of robo-advisers mean to you as a consumer? At roboadvisorpros.com, we asked some of the experts in the field where they see the industry going. Here are some trends to look out for, whether you are familiar with the robo-advising platform, or just beginning to consider this as a viable option for your investments.

Lower Fees and Compressed Margins

We noted on our website that as more and more robo-advising platforms join the market, the competition for investors grows fierce. One of the benefits that robo-advisers have over traditional advisers is their ability to charge low fees. Realistically, in order to stay competitive against other robo-advisers, each platform must constantly reevaluate their fees against those of other platforms.

Henry H. Ngan, senior international investment and financial executive for HHN Capital LLC, sees the future of robo-advising being driven by “millennials, price-sensitive clients, [and] client demand for stand-alone robo-advisers and hybrid service models.” These clients may not have a lot of money to invest initially, so in order to reach these clients, robo-advising platforms must drop their fees.

The benefit of this to consumers is immediate: lower fees means more money going to work for you through investments. For younger investors just getting started, this means the difference between immediate investing and waiting a few years to begin earning higher wages—and potentially missing out on the early years of investing.

Technology Will Improve Across the Field

With each generation becoming more tech-savvy than the one before it, the demand for better investment technology increases exponentially. New insights are constantly being applied to robo-advising platforms, and they are only getting better as time goes on.

Patrick W. Hannon, enterprise accounts vice president at Advicent Solutions, believes “robo-advisers will force advisers to use technology to add value to their services.” As such, the entire process of investing will get a technological facelift, and consumers will see improved service whether they choose a robo-adviser or a traditional adviser.

Artificial intelligence (AI) is improving as well. Customers want to feel as though their investments are being made wisely, and sometimes trusting pre-designed algorithms from a robo-adviser just does not seem wise. Increased AI will make robo-advisers slightly more like humans in that they can improvise more than in the past, which increases customer trust in the platform’s abilities.

One very important impact increased technology has is that mobile access to investments will continue to increase. Mobile banking has been around for a while, and robo-advisers are improving on this technology. Now, some robo-advising platforms make trading stocks as easy as pulling out your smartphone while commuting to work.

Humans and Technology Will Work Together

Even with newer and better technology filling the market, most clients still want a human touch. Human/robo-advising hybrids will continue to increase to meet the demands of clients who want the 24/7 access that robo-advisers offer, but still crave a human to discuss investment choices.

This marriage of human and robo-advising services means greater accessibility to funds, easier wealth management, and a more varied range of services than can be available through either a traditional financial planner or robo-adviser alone.

What this means for traditional financial advisers is that they must jump on board with technology or risk becoming obsolete. Customers demand access to their funds outside of traditional “banker’s hours,” and using technology to meet this demand can add value to a client’s experience.

Mergers Will Happen

The industry has already begun to consolidate, with larger companies purchasing smaller, underperforming robo-advising platforms. Although many companies are excited to get a piece of the robo-advising pie, the truth is that there are only so many customers willing and able to pay for investing advice. Falling markets and asset deflation are other reasons a merger might occur.

An Increase in Government Regulations

New and existing laws impact both robo-advisers and financial planners equally, as we discuss in this article on Robo-Advisor Pros.com. However, robo-advisers differ from traditional financial planners in some serious ways, and the government is refocusing some regulations in order to account for these differences.

More Structured Product Offerings

Dr. Kenneth Gustin, advisory board member for Chartis Research Ltd., believes that investors will start to use robo-assisted services for “two main types of trades: (1) structured trades on a holding-period horizon scenario basis using off-the-shelf products (ETFs, index products, baskets, etc.) supported with quantitative trading simulation tools to trigger entry/exit and (2) structured products that offer bespoke payout profiles.”

These are more structured, sophisticated investments than have been traditionally offered by robo-advising platforms. Though the passive robo-advising options will still exist, this wider range of services will offer consumers a larger base to choose from. In turn, robo-advisers will become appealing to a more varied customer base.

Non-Financial Players Can Join In

Companies with big-time capital, such as Apple (AAPL), Amazon (AMZN), Google (GOOG) and Facebook (FB), can jump into the game if they want. The easy access these companies have to capital means that they may be able to bend the rules a bit, and add a new dimension to the robo-advising market.

The neatest thing about this option is that these companies might be able to create new products. These products could compete with traditional investment offers in ways we cannot yet imagine.

Exciting Things Are Happening

The entire landscape of investing is evolving, and technology is at the center of it all. Whether or not you embrace change, the changes coming to the robo-advising market are clearly beneficial to the financial advisory field in many ways.

Go to Top 11 Robo-Advisor Trends for the Future for the full PDF article at Robo-Advisor Pros.com.


Discussion

jfrd from AE posted 4 months ago:

Contrary to this, Betterment just raised their fees on larger accounts (over $100,000). Beginning 1 June they will rise from .15% to .25% up to $2 million.

They also added two new categories, a once a year conference with one of their "licensed" professionals for .4% (Plus Plan) and frequent conferences with one for .5% a year (Premium Plan). This is in addition to the average .15% or so you pay for the ETFs they use.

So if you want full "premium service" it's going to cost around .65% a year.

No details were provided on what sort of license their professionals have. Drivers license? Liquor license? License to kill?

Betterment also refuses to pay Quicken fees for automatic download, so you must enter all transactions manually. With deposits and dividends spread over up to 20 ETFs, this becomes a real chore. Quarterly statements are provided in pdf format; no spreadsheet transaction downloads either.


jfrd from AE posted 4 months ago:

Contrary to this, Betterment just raised their fees on larger accounts (over $100,000). Beginning 1 June they will rise from .15% to .25% up to $2 million.

They also added two new categories, a once a year conference with one of their "licensed" professionals for .4% (Plus Plan) and frequent conferences with one for .5% a year (Premium Plan). This is in addition to the average .15% or so you pay for the ETFs they use.

So if you want full "premium service" it's going to cost around .65% a year.

No details were provided on what sort of license their professionals have. Drivers license? Liquor license? License to kill?

Betterment also refuses to pay Quicken fees for automatic download, so you must enter all transactions manually. With deposits and dividends spread over up to 20 ETFs, this becomes a real chore. Quarterly statements are provided in pdf format; no spreadsheet transaction downloads either.


Melvin Erfle from CO posted 4 months ago:

I logged-in as instructed to read can slim, it didn't bring it up. What do I do I do now?


Jackie McClellan from IL posted 4 months ago:

You will have to go to Computerized Investing and click on the Can Slim article on the home page.

Or re-click on the Can Slim link you originally clicked on once logging in.

If you're having issues then call member services and they should be able to help you.


John Dale from TX posted 4 months ago:

Very offputting, can't find the article on CANSLIM


Vaidy Bala from AB posted 2 months ago:

Sorry! I still cannot figure out quickly why go for CI RETURNS compared to Individual Investment Strategy or financial planners? What is the advantage to investors. speed, better return, transparency, intractability, integrity, responsibility etc.,


Jack/john Eddington from FL posted 29 days ago:

I have been testing the waters with Schwab's IP (Intelligent Portfolio) version of robo-investing since October, 2015. They invest 100% in ETFs (and cash). They start with a questionaire to determine the mix to invest in. I said I didn't want to do that because at my age (I was 72 at the time), I would end up with a too conservative portfolio for my taste. He agreed to "create" my portfolio based on what I wanted since he knew how to answer the questions to get any type portfolio. I'm very happy with the results. I am in 19 ETFs.

The main reason I'm interested in robo-investing is that I'm playing the back nine in life and statistically will go before my wife, who has no interest in investing.


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