Investing: Replacing your wealth adviser with a computer
Would you trust your investments to a robo-adviser? asked Rob Curran in The Wall Street Journal. Traditional financial advisers are battling with new financial tech firms over who’ll get to manage Americans’ wealth—especially the $11 trillion in investments that Millennials will have by 2030. On one side are venerable names such as Merrill Lynch and Morgan Stanley, companies that have managed rich Americans’ money for generations. On the other are those so-called robo-advisers: startups such as Betterment and Wealthfront, with low minimum investments, well-designed websites, and automated financial advice. These firms are building market share quickly, especially with young investors who have “grown up with a digital mindset.” Traditional brokerages are betting that “as people age, their lives get more complex” so they’ll turn back to human advice. Maybe so, but investors who’ve tried the all-digital route have gotten used to “cutting-edge technology.”
For those who trust technology, a robo-adviser may seem like the obvious choice, said Joe Allaria in Investopedia.com. But life is about managing the unexpected. Yes, robo-advisers are cheaper: They typically charge 0.25 percent—25 cents for every $100 in your holdings—as an annual fee, compared with the 1 percent that’s typical for conventional wealth managers. Investing, though, isn’t just about math and charts. Automated systems don’t know about the emotions that “drive our financial goals.” And a bot “can’t listen to your tone, can’t read your body language, and can’t redirect you.” And what happens when the market drops? asked Anna Bahney in CNN.com. Robo-advisers use algorithms to suggest investments; a market correction or high inflation can make those algorithms go haywire. In a downturn, inexpensive robos may give you what you pay for.
You might not have to choose between human and robotic financial advice, said Tara Siegel Bernard in The New York Times. Some digital firms are adding human help, while still charging less than half of what old-fashioned advisers ask for. Betterment now offers advice from a real person on subjects such as college or marriage planning for little more than the cost of “a fancy pair of jeans.” If you have at least $100,000 invested, you can get unlimited advice from Betterment’s human planners for an extra 0.15 percent of assets, or 15 cents for every $100 you’ve invested. Charles Schwab’s “Intelligent Advisory” service, which also combines online planning with human help, costs even less. “And if robots and humans can keep playing nicely, even more people who don’t have piles of money will be able to get affordable financial advice.” ■