Robo-Advisors: 4 Predictions for 2017

by | Financial Advisor, technology

Robo-Advisors: 4 Predictions for 2017

Previously viewed as only for millennials and less experienced individuals, robo-advisors have gone mainstream with an expanding demographic. Younger investors are coming out of school understanding the need for managing their money. However, they don’t want to hand it over to someone and forget about it until retirement (trust issues?). Similarly, seasoned investors see the benefit of lower transaction fees, no accounts minimums and “hands on” management (control issues).

According to a research by A.T. Kearney, robo-advisors are set to manage $2 trillion is assets by 2020. With that rapid rate of growth, these are clearly a tool that cannot be ignored. Betterment and Wealthfront, two of the largest robo-advisors, are managing $6.0 billion and $4 billion, respectively. WOW! What’s coming up next? Here are the robo-advisor trends you’ll see happening in 2017:

  • Consolidation: If you can’t beat them, buy them! BlackRock recently bought Future Advisor and Northwestern Mutual Life acquired LearnVest. These deals clearly show that even the big players see a future for this technology. It’s not time for the larger firms to worry. Although the assets under management (AUMs) for these automated systems is a mere $8 billion (WSJ, July 2015), that number shows 100% growth in 12 months. Look for more consolidation and mergers in 2017 as large firms keep a watchful eye on their smaller, more nimble competitors.
  • I Want More, More, More!: Robo-advisors have traditionally focused on indexes and exchange traded funds (ETFs). Look for these algorithms to offer trading options between common, simple indexes and services used to try and time the market. Investors using robo-advisors are going to want more options that also offer a decent return.
  • I Want Less! – Minimums required to start an account will continue to drop. Nerdwallet reports that Personal Capital ($1.8 billion AUM) lowered their account minimum by 75% to $25,000. To stay competitive, TradeKings Advisors has lowered account minimums to as low as $500! These drops are largely in part to younger investors not having as much to invest initially.

Smart Financial Professionals Embrace Tech

  • Cyborgs Emerge – Although it won’t be Arnold Schwarzenegger’s character from the 1985 movie Terminator, broker dealers like Schwab’s Intelligent Portfolios will continue to evolve. Like Fidelity Go, these robo services will be a hybrid of computer algorithm and human involvement. Not wanting to be left out of the lives of millennials, larger firms will continue to build their own services in house.

In an August 2015  survey of 2000 adults, almost 50%  of respondents said “trust” was a reason why they did not work with a traditional advisor. Automated systems can lower the trust issue while capitalizing on consistency, lower fees and full access to investor information. There is no way to future proof any industry. However, the innovative advisor is always looking for the best ways to meet client needs. That tool chest can involve, social media, mobile technology and…robo-advisors. Embrace the future!

Scientifically Speaking, of course.