The Future of Robo-Advisors-Are Human Advisors and Small Players Doomed?

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With recent leaps in artificial intelligence technology, many financial advisors worry whether their position will be replaced by machines. The future of robo-advisors looks strong, and human advisors are uneasy.

Human financial advisors are particularly worried because of the explosion of new AI platforms. These AI systems are a competitive challenge. Human advisors are scrambling to adapt to a changing environment.

*Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link.

In the investment world, artificial intelligence plays a key role. Currently, there are over 200 platforms known as “Robo-advisors” that create and manage investment portfolios for their users. Certainly, all of them won’t survive. We’ve already seen the demise of Qplum, Hedgeable, Motif, and Swell.

What does the future of robo-advisors hold? Are human financial advisors doomed?

What Does a Robo-Advisor Do?

Most robo-advisors create an investment portfolio based on the choices you select from a simple survey. Although the surveys vary, they are designed to assess your goals and risk tolerance or comfort.

In general, the platforms offer a diversified menu of investments. Your final portfolio is set up to comply with your stated goals and risk level.

After completing a brief questionnaire your asset allocation is created. This is the mix of stock, bond, and occasionally funds from other asset classes. The platform then will provide ongoing portfolio management and rebalance your funds, when they deviate from your desired asset allocation.

You choose the dollar amount you wish to invest. Essentially, the computer algorithm based portfolio management controls your investment without requiring a human-touch. Most of the time, the system works much like a human investment advisor. And that’s the competitive problem for traditional wealth managers.

As more investment products are added, like lending and cash management, human advisors and the advisory business may suffer. Investors may balk at paying upwards of one-percent to a financial advisor when the digital or hybrid equivalent charges significantly less.

Robo-advisors generally charge significantly lower fees than human financial advisors.

On the other hand, though investing with a robo-advisor is simple, there are some downsides you should understand.

Robo Advice Future Projections

Statistica tallys current client assets under management at $987,494 m this year. The robo assets under management is expected to grow at a 26% annual rate between 2020 and 2024.

While the number of users is projected at 436,334,100 by 2024.

Globally, the US tops the list of robo advisors by AUM with China, Japan, United Kingdom and Italy in the two through five places.

5 Biggest Robo’s Assets Under Management

United StatesUS $682,726 m
2. ChinaUS $74,567 m
3. JapanUS $30,323 m
4. United KingdomUS $18,267 m
5. ItalyUS $15,269 m

Types of Robo Advisors

The vast variety of digital platforms contribute to a sound future for this wealth management sector.

Beginning in 2008, during the financial crisis, the earliest platforms focused on basic digital investment management. Only Betterment and Wealthfront launched as a way for investors to save and invest for their futures with small amounts of money and proven investment strategies.

Today, the earliest entrants and newer platforms have branched out into a wealth of services.

United Income targets baby boomers and retirees.

While Schwab offers two platforms, one all digital and the other with financial advisors and a low subsciption fee.

The Ellevest platform is created for women and offers access to human financial advisors and career coaches.

There are even several robo advice platforms with active investing strategies.

From those services with zero investment management to those with low minimums, there’s something for every type of investor.

And, if you’ve got an account at one of the big financial firms, you can have access to digital wealth management too.

Robo-Advisor Investing Cautions

Much like any online-based industry, the robo-advisory field also has the potential for scams and inappropriate tools. It is best to conduct thorough research before you create an account with any online investment platform.

Besides the risk, most services cannot provide the same level of customization as human investors. To determine the investment goals and needs of a client, the digital platform requires the client to complete a simple survey.

On the other hand, human advisors will likely sit down with you for a couple of hours, asking numerous questions, to create a highly targeted investment portfolio for you. Robo-advisors can only slightly tailor portfolios to match your unique needs and goals.

As a matter of fact, the level of customization available with robo-advisors might be low and their “Recommended” strategies are recommended to many other clients. This may lead to an investment portfolio not tailored specifically to your distinct situation.

For more affluent investors, seeking broad wealth management services, there are only a few platforms that are suitable-like Personal Capital, Schwab, Ellevest, and Vanguard.

Despite their drawbacks, most robo-advisor’s portfolios are based upon well-regarded investment theory, and their fees are quite affordable.

Should You Avoid Robo-Advisors?

This begs the question; should more people invest using robo-advisors? Or is it best to avoid them because their future could be uncertain?

Investing with a robo-advisor is easy and anyone can do it.

Yet, just because the future of robo-advisors is uncertain, doesn’t mean you should shun this wealthtech industry. These fintech investment managers offer low fees and sound investment guidance for many types of investors. So, in short, don’t avoid robo-advisors.

Even if the service that you choose fails, they all offer SIPC insurance and protection so you won’t lose your money.

Will Robo Advisory Platforms Replace Traditional Investment Firms?

Due to the success of robo-investment, many traditional financial advisors are worried they’ll be replaced. Yet, when reading the tea leaves, the robo advisory growth looks promising.

Though robo-investing is on the rise, it is unlikely to completely replace traditional investment services. Many people prefer walk-in meetings with their favorite investment advisory firms. And robo-advisors, though growing rapidly, remain a small piece of the investment pie.

Nevertheless, investors who manage their client’s portfolios might benefit from learning how to use these robo-firms to their advantage. Diversifying an investment portfolio is important. Many advisory services combine digital investment advice and mangement with human guidance. This can reduce client costs and offers a best of both worlds client-solution.

This type of investment is often called robo-hybrid investments, and it is an industry that is currently experiencing rapid growth.

Can Small Robo-Investment Firms Succeed?

New robo-advisory firms are sprouting up rapidly and many don’t see the light of day.

Currently, about 200 firms dominate the robo-investment market. The legacy firms with a good reputation and proven track record may benefit from an independent future or the potential to be bought by bigger players.

One of the earliest robo-advisors, Betterment, was a break-through independent platform in the investment world. The service has recently added investment advice and continues as a low fee leader in the robo-advisor sphere.

Since its launch in 2008, the company has steadily expanded and updated their algorithms.

For start-up robo-advisors, competing with such a firm will be a challenge, unless the new firm can provide additional features and a better return on investment combined with lower fees.

For example, Titan Invest, a newer platform with a hedge-fund approach is gaining ground against the legacy players.

Although those without advisory services may be operating at a disadvantage.

The challenges are great for new entrants. Not many small-time firms have the resources to invest in upgrading their platforms and algorithms. Small independent robo-investment firms may struggle to receive a cut of the investment market, unless they are backed by powerful investors and a large sum of funds.

Nevertheless, hybrid-robo firms (investment firms that combine robo-investments with a human-touch) are predicted to grow much faster than their “pure” robo-counterparts. And the Schwab, Fidelity, E*Trade, BlackRock and other big firms are tough to beat as they develop or acquire their own robo-advisory shops.

Hybrid Robo-Advisors – The Wave of the Future

More platforms are adding human financial advice either included in their management fees or as an a la carte option, like Ellevest.

A standout in the hybrid robo investing model is SoFi Invest. This platform does not charge management fees or trading commissions. The company offers automated investing and active investing all under one roof. And, to top it off, included for all users is access to financial advisors and career coaches.

Other hybrid platforms include:

  • Personal Capital
  • Future Advisor
  • Schwab
  • WealthSimple
  • TD Ameritrade
  • Vanguard

The list of hybrid robo advisors continues to expand and we expect more companies to join the trend.


Which robo-advisor has the best returns?

At present SigFig has the best 2 1/2 year returns. But, before you rush out and open an account at SigFig, realize that your returns will vary based upon which portfolio within a provider that you choose as well as when you invest. It’s best to look at many factors in addition to returns, when choosing a robo advisor.

Are robo-advisors worth it?

Yes, robo advisors are worth it! For excellent, proven invesetment management robos will manage your investments and offer many other services, for a low fee. There are so many types from which to choose, that most investors, whether they want a human financial advisor or not, will find a robo-advisory service that’s right for them!

Can robo-advisors make you money?

Robo advisors help you manage your investments, typically stock and bond funds. Investing in financial assets has earned investors generous returns over the long-term, from 5% on average for bond funds and 9% average for stock funds. But, realize that in the short term (less than 5 years) returns may bounce around and even decline for a year or so.

What is the Future of Robo-Advisors and Human Financial Advisors?

If you’re concerned whether robo-firms will take over the investment services industry, there is little need to worry. On the contrary, ending up in the trash heap is also unlikely for this industry. Although, a recent ThinkAdvisor article, “Will Robo-Advisors Be Terminated?” by Ginger Szala, suggested that these once impressive disruptive technologies were facing strong headwinds.

John Ndege, CEO of Pocket Risk, a provider of risk tolerance questionnaires believes that the “tipping point” for robo-advisors will be gradual. He expects larger firms to build or buy robo-technology and growth to slow. Eventually, the venture capital may dry up and valuations may stall.

The next market crash is likely to have an impact on the future of robo-advisors.

For investors, sticking with the robo’s attached to big brokerage companies or those firms with proven track records is probably the best solution.

Ultimately, the future of robo-advisors is like the future in general-unknowable.

Keep your eye on the trends and when choosing a robo-advisor, perform your due diligence first. Small independent robo-advisors might have a tougher road ahead than the bigger players. Human advisors will need to adapt, to compete.

Best Robo Advisors

The Ultimate Goal of a Robo-Advisor

TIAA Robo Advisor Review

Should I Use a Robo Advisor?

FutureAdvisor Review

5 Robo-Advisors With Downside Risk Protection

 Regardless of whether you choose to use a robo-advisor or not, you can’t pass up this free financial investment and money management tools giveaway. (No spam and you can unsubscribe at any time)

Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t  believe is valuable.

Barbara A. Friedberg has an account with M1 Finance.

*For M1 Plus customers

2 thoughts on “The Future of Robo-Advisors-Are Human Advisors and Small Players Doomed?”

  1. I have 100% of my investments with low fee advisors that many people consider Robo’s. Personal Capital, Vanguard management and Betterment have different strategies and different investments and my plan is to follow them all through the remainder of this bull market and the inevitable major correction to come. I suspect that the experiment will show what I already expect. The extremely aggressive Betterment that is doing better in an up market will take it on the chin when the market tanks, the extremely conservative Vanguard which is now lagging the others will glide through the correction with minimal pain and Personal Capital which is in between will, well, be in between. My only quandary is whether Personal Capital’s higher fees will prove to be justified. Time will tell.

    1. Hi Steveark, Please keep me posted on your results. This is an interesting experiment. You are savvy to understand that results will vary depending upon market conditions. You might also like to review Condor Capital’s research on robo-advisor returns here: I’ll be updating the robo-advisor return data soon to reflect recent performance. Thanks so much for writing in. I look forward to hearing how your investments pan out over the coming time period.

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