Over the recent decade, several automated investing vehicles have joined the market. Some of these options may offer services similar to traditional financial counselors at a reduced cost. Some people have made the switch due to the simplicity of use and lower cost of these devices. According to Charles Schwab, the number of robo-advisory services in the United States is predicted to grow from 2 million in 2018 to 17 million by 2025.
Should financial planners and asset managers be concerned about the emergence of these Fintech solutions? Or are they just a fleeting trend? This article will identify automated investment solutions and examine how they may impact the financial planning profession.
What Are Automation Investing Tools?
Typically, robo-advisors, also known as automated investing, develop and maintain your portfolio using algorithms and artificial intelligence. A robo-advisor will frequently utilize an online survey to collect information on a client’s financial situation, risk tolerance, and future goals. This information is then used to build the greatest portfolio possible. Because the process is totally automated, there is little to no need for human oversight.
The Development of Automated Investment Tools
Because they’re a great option for novices or people with long-term objectives like retirement, robo-advisors are quite well-liked. Additionally, they don’t cost much to start with and are also quite simple to use. Financial planning and investing are made as passive as possible by fintech companies like Betterment and Wealthfront, allowing consumers to carry on with their daily lives as their assets increase in the background.
A robo-cost advisors are also less expensive, with the majority charging 0.25 to 50 percent of the assets under management, which is much less than the 1 percent or more that traditional advisers often charge. Another important factor in the rising popularity of robo-advisors is their decreased costs.
Can Automated Investing Tools Replace Traditional Advisors?
Despite the fact that automated investing tools are growing increasingly popular and may pose a threat to traditional advisers, it is doubtful that they will ever totally replace them. Many people, especially the rich, want to have a traditional consultant who can handle their financial situation. Some areas, such as complex tax problems or estate planning situations, cannot be handled by robo-advisors.
Furthermore, many customers enjoy the human touch that counselors can provide. Customers want to feel informed and confident about how their money is being handled. A traditional adviser may and will assist their customers in determining the best solution for them and their needs.
Automated investing programs clearly have a purpose and are an excellent choice for those who previously would not have been able to afford financial advice. However, investing is only one component of the problem. As a person’s assets grow, they will require a financial strategy that considers a variety of things other than investing, such as taxes, estate planning, and insurance needs. Robo-advisors are unable to perform this service.
As a result, while robo-advisers may disrupt the financial services industry, they will not eliminate all employment for traditional advisors.
