Robo-Advisor News – August 2017
The robo-advisor industry is moving at lightning speed. These digital financial advisor, that manage your investment dollars using sophisticated computerized algorithms for low fees are upending the traditional wealth management market. Existing robo-advisors are continually updating their features. With Betterment and Wealthfront at the helm of change by adding human and digital financial advising, respectively.
Following are some of the recent updates across the robo-advisory landscape:
“Your Robo-Adviser May Have a Conflict of Interest” by Hugh Son on Bloomberg.com
“But it turns out that even software-based financial advisers can have conflicts of interest. Banks still employ armies of advisers and get payments from fund companies that want access to those advisers’ clients. There’s a risk that the banks’ robo programs could favor mutual funds and exchange-traded funds from companies that make such payments, according to disclosures by the banks.”
“The Danger of Robo Advisers, According to a Star Human of the Investing World” by John Detrixhe on Quartz – QZ.com
“It’s a one-size-fits-all financial solution,” he said. “Everybody gets the same portfolio, which means everybody owns the same stock, which means when they all decide to get out you cause a crash.” According to Jeffrey Gundlach, bond manager, co-founder and CEO of DoubleLine Capital.
“Robo advisers, digital advice, and the future of the advisory business” by Joel Bruckenstein on MarketWatch.com
“Initially, digital advice platforms were limited in scope to investment advice, but some are now evolving into more comprehensive, robust platforms. Vanguard and Schwab are two firms that have incorporated financial planning into their digital offering for consumers. Fidelity’s Automated Managed Platform (AMP) and AdvisorEngine are two examples of firms that are incorporating financial planning and other tools into platforms for advisers.”
“Vanguard, Schwab Squashing Robo-Advisor Indusry, Report Says” by Christopher Robbins on Financial Advisor – fa-mag.com
“The report (by S&P Global Market Intelligence) predicts that digital advice assets will grow from $98.52 billion at the end of 2016 to $460.46 billion at the end of 2021. While some companies, like WealthFront, Personal Capital and Betterment, continue to expand their business and increase their assets, traditional companies like Vanguard and Charles Schwab—the largest and second-largest robo-advisors in the U.S., respectively—and E*Trade are now the primary driver in robo-advisor asset growth, according to the report.”
“Edelman: Most Robo-Advisors More Unsustainable Than Ever” by Evan Simonoff on Financial Advisor –fa-mag.com
“Unless their venture capital backers want to pony up endless infusions of capital, most robo-advisors are more unsustainable than ever, according to Ric Edelman, chairman and founder of Edelman Financial Services.
Many are struggling to “make payroll,” and their best hope is to be acquired, Edelman said. Indeed, that has been the preferred exit strategy of many robo-advisors.
But Edelman maintains that even businesses like Betterment and Wealthfront are not viable, going concerns as long as they keep charging miniscule basis points. When competing against giants like Vanguard and Schwab, both of which can subsidize their own robo vehicles indefinitely, the model makes no sense.
In a world where giant players are slashing fees to near zero, using price as the main value proposition makes it very hard to differentiate an offering.”
“How Do Robo-Advisors fit in With Traditional Wealth Managers? by Barbara A. Friedberg on RoboAdvisorPros.com
“MT: What is the effect of robo-advisory on the current wealth management market?
BF: In 2014, the global wealth management market was worth approximately $74 trillion. So, it’s a huge market and the robo-advisors are a very small percent of the total market. A study by BusinessInsider projects that by 2020, robo-advisors will manage ten percent of the total global AUM. Although digital wealth advisors are growing quickly, their impact on the wealth management market is slight. In several years, another look at the wealth management landscape will determine whether robo-advisor growth is making a greater impact on the field.”
Robo-Advisor News Wrap Up
When it comes to managing your money, keep on top of the news. Financial advisor’s fees are getting squeezed. Larger financial firms are trouncing the smaller “robo only” shops. New investment services are cropping up rapidly. For consumers, these changes mean lower fees and more choice. For advisors, there’s a challenge to adapt to the new landscape. Regardless of the robo-advisor updates and industry changes, make sure to do your own due diligence before investing with any robo-advisor or human financial wealth manager.