How Robo Advisors Will Affect the Finance Industry
Robo advising isn't just a buzzword. In the U.S. today, there are already $980 million in assets
managed by robo advisors. These aren’t slowing down anytime soon. In fact, they’re growing by a rate of 27% annually.
For financial advisors and other wealth managers, robo advisors are known as the great reckoning
. While there’s no denying these AI tools are taking over the fintech industry, that doesn’t mean advisors need to throw in the towel for good. New advising technology is opening the finance world to new possibilities. Here are the ways robo advisors will affect the finance industry in 2020 and beyond.
1. Lower Barrier to Entry
Times are changing. Tech is making services that were once out of reach more affordable than ever before. The average fee to work with an individual financial advisor is still steep. It can cost anywhere from $1,500 to $2,500 just for a one-time financial plan.
Robo advisors offer a low-cost alternative.
Since these tools are automated, there’s a lower barrier to entry into stock and investment trades. For instance, apps like Robinhood
offer completely free stock tracks. Robo advisors even can manage an entire portfolio for you, not just individual stocks. Using an automated service can cost around 0.25% of your portfolio value compared to 1-2%. This makes these tools far more accessible than their human counterparts.
2. DIY Money Management
Robo advisors empower the general public to manage their own money confidently. Most people don’t have a business degree, let alone a finance degree. Let’s face it — money is complicated. Understanding investments, trading, and long-term savings is a complex feat in itself.
Robo advisors make all of these things more simpler to the DIY user. From understanding basic information to customizable finance recommendations, having an AI tool on your side is a good thing for the majority of the population.
3. Automated Portfolio Rebalancing
Robo advisors particularly shine when it comes to tedious, repetitive tasks like rebalancing. It’s common advice in the investment world that rebalancing your investment portfolio to your ideal asset allocation improves your overall returns. In other words, it’s more reliable.
While you can certainly do this yourself or with the help of a financial advisor, it’s a tedious, time-consuming task. This is one of those things that’s so simple, your robo advisor SHOULD do it for you. In the future, robo advisors will take over even more repetitive advising tasks.
4. Simplified Financial Planning
While robo advisors won’t likely be a good fit for those who have a high-figure net worth, they are ideal for those in middle-income brackets. The average consumer simply doesn’t need a comprehensive financial plan. Determining taxes, investments, and long-term goals can now be done through AI tools that measure all of the details at once.
With only 49% of Americans
having a long-term financial plan, you can see why this is such a big market. Leveraging these new consumers is the goal of many fintech startups and robo advisors alike.
5. Partner with Financial Advisors
Finally, the last way robo advisors will affect the finance industry is by partnering with financial advisors. Today’s advisors need to realize that if you can’t beat ‘em, join ‘em. Advisors who partner with these tools and services will have access to greater pools of clients, simplified automation, and advanced tools.
A lot of the traditional advising process is outdated. It relies on paper-systems and old fashioned calculations. While this all has its place, there’s no denying that technology speeds up this entire process and saves both advisors and clients money.
Robo advisors might seem like a threat to traditional financial advising. Instead, think of this as what it really is: a call to action. Now is the time to develop authentic relationships with your clients. Advisors now can find new market opportunities for 2020
and learn to serve these areas with confidence. Only then will advisors be “robo proof.”
The Bottom Line on Robo Advisors
There’s no stopping the wave of change robo advisors will bring in the next year. They’re already a force to be reckoned with. The finance industry will either need to change with robo advisors or be left in their dust.
For advisors looking to guard their practice, they need to run towards new technology, not away from it. Learning how to develop relationships, build your own services, and gather more clients is key to staying afloat in a changing industry.
Subscribe to get your daily round-up of top tech stories!