What Is a Robo-Adviser?

Learn about CI’s newest column on online advisory services.

Robo-advisers are online wealth management services that provide automated portfolio management and advice. These “robos” have been a popular topic of conversation within the last couple years and especially in 2015. Their goal is to make investing easier for those who don’t want to actively manage their own portfolio.

I realized the magnitude of the interest after writing an article in the AAII Journal called “What Exactly Do Online Advisory Services Offer?” Not only did I receive many inquiries from members, but I also had non-members contacting me via email and even LinkedIn. People wanted more information on robo-services and they were even interested in my personal experience with them while researching the article.

I attended the Morningstar ETF Conference at the end of September (which was awesome, by the way!), and robo-advisers were a hot topic there, too. Following a panel discussion, I attended a meeting in the press room that followed up on the topic of “the future of financial advisers.” Again, I was amazed at the interest in robo-advisers and impressed by the outlook of the representatives of prominent traditional financial advisory firms. These financial advisers were not upset about the robo-revolution, but almost… excited. They felt that the robo-advising companies were helping traditional firms by creating technology to propel the financial services industry forward and by reaching younger crowds of investors.

One of the financial managers described robo-advisers as a “disruption” in the industry, much like mutual funds and exchange-traded funds (ETFs) were once disruptions when they in turn became popular. These disruptions push the financial services industry to new levels and force those in the industry to evolve.

Although this is the outlook of many advisers, some are more resistant to the emerging robo-advising industry. I realized that this presented a great opportunity not only to research each of the robo-services, but also to uncover the different viewpoints on the new technology. These automated services should be as transparent as possible. My intent is to build up a new section for Computerized Investing members (and prospective members) where they can read about robo-advisers, learn about their methodologies and understand their technology.

To kick off the first Robo-Advisers column, I interviewed the CEO of Huygens Capital, Walt Vester. Huygens recently launched a robo-advising service that uses a different strategy from what most robo-advising services currently offer. The strategy involves predicting increases in market volatility to try to avoid those periods with a high risk of equity market losses. To read about Huygens’ approach, check out this month’s Robo-Advising article “Huygens Capital’s Active Approach to Robo-Advising.”

Also in month’s edition, we feature the PC Buyer’s Guide. Former CI editor Wayne Thorp really outdoes himself with this one. Not only is it easy to understand, but you will also learn how to define your personal needs when it comes to buying a personal computer. This CI-exclusive guide covers PC operating systems, platforms and key components to create an overall understanding of what goes into a computer as well as what features or components you need to look for when PC shopping. According to the Consumer Technology Association (CTA), a record-setting 91 million Americans (37%) expect to purchase tech or tech accessories during Black Friday week. Don’t be one of the many shoppers that get tricked into buying add-ons that you don’t need.

Lastly, I want to thank everyone who attended the AAII Investor Conference in Las Vegas. It was my first AAII conference and, I must say, the amount of support and positive vibes I received was overwhelming! I’m happy to say I was not booed off stage. For those who didn’t get to make it to the conference, the audio recordings are for sale here. With your purchase you receive unlimited access to over 50 audio recordings and the PDF handouts of each presentation.

As always, I want to stress that I welcome questions, suggestions or comments from members. If there is software you want us to check out, people you want us to interview or concepts you want us to research, let us know!

If you have used a robo-advising service, perhaps you would be interested in writing an article for CI describing your experience. Other members can benefit from your insights, so please don’t hesitate to email us.

Since the next CI edition will be in December, I wish you all a happy Thanksgiving.

Discussion

Michael Daillak from CA posted over 10 years ago:

I have just posted the following comment to your interview: "Sounds to me like just another "Assets Under Management (AUM)" broker, trying to coattail on the current investment topic/method "de jour". The only robo advisory website that I've encountered, that really isn't the same old AUM model trying to disguise itself as something "new", is www.buyselldonothing.com " The website I mention above is oriented to long-term (15 years, or longer), "buy-and-hold" investing in US stocks with regularly increasing dividends (read their "About Us" link), dividends that increase a minimum of at least 40% every 5 years. It points out that in the long-term (15 years, or longer) history of the market after every "crash" the major market indexes have recovered to historic "new highs"; consequently, it recommends suspending all selling for at least 18 months after any "crash"!! Where is the evidence that "trading in-and-out" will out-perform "buy-and-hold" over the long-term??! AND, even if such evidence exists, is it worth the significant extra time and emotional cost??! AND, can such trading success be achieved by the average investor??!


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