For the past few years, robo-advisors have been growing in popularity as a wealth advisory service. New investors, especially millennials, are attracted by low minimums, low fees and the promise of solid returns. Using simple computer algorithms for setting asset allocations based on age and risk tolerance, robo-advisors automate the rebalancing and tax-loss harvesting process to keep an investor’s portfolio on track.
While this type of service generated significant asset growth in the beginning, that growth has leveled off today. Although the use of robo-advisors continues, the service is being replaced by a broader trend, with financial advisors using computer programs to assist them in offering investment advice and overseeing client accounts.
There remains a relatively small segment of investors for whom robo-advice can meet most of their needs. However, the vast majority of investors with broader needs—and the advisors that serve them—are deriving significant benefits from this new digital advisory trend—the delivery of digital advice for a digital world, but with humans firmly at the helm.
In fact, the popularity of robo-advisors, and the lessons learned from their implementation, point to a new way advisors, online brokerages and other financial institutions can do business. These advice and investment providers can build or acquire a platform offering far more than simply digital advice. It can instead power an environment where a personalized
investment program is successfully delivered through advisor, call center and digital channels, depending on the most effective channel, as well as client preference.
Call it an automated advice platform—a suite of software that can guide investment decisions and much more, from tax-loss harvesting and rebalancing to data mining and predictive analytics, helping the firm and advisor interact with the client through the most appropriate channel. Such a system drives efficiencies and cost savings, as well as an enhanced customer experience.
There are many factors and options that firms should consider when planning and deploying these systems. In this paper, we look at what is driving the technology behind automated advice platforms, and what firms need to know as they consider the technology.