All Hail Robo: The Rise of [Investment] Democracy

Earlier this month, I was talking with an investment management friend.

“I think robo is here to stay—but it’s not here to stay all alone,” she said. “You can invest with a robo on your own, or through us, the professionals. At the end of the day, it’s about optimizing the portfolio so that what is best for the client is what the client gets!”

What she’s saying about robo—robo-advisors, that is, those automated or app-based programs that do your investing—is something that a lot of us know, but the media doesn’t always get straight. Robo is not a singular noun. There are multiple versions.

Some are self-serve, where the investor plugs in answers to profile questions (probably on her smartphone), transfers some cash, and gets a full portfolio.

Others involve an advisor via phone or help-chat.

Still others are advisor-led where the investor sits alongside the advisor and together they complete the forms.

It’s easy to see the appeal. For the millennial, robos open doors that weren’t previously open—they have low minimums, comparatively low costs and expenses, and offer (automated) advice to those who weren’t served by advisors before. For the older and/or wealthier, robo solutions can be the investment engine for all manner of accounts—a 529, an IRA rollover, a taxable account, even a 401(k)—and they can offer a wide range of strategies.

What may be less obvious, to the investor, is that the robo “disruption” is actually more of an evolution. Some parts of investment advice are quite easily automated—like modeling portfolios and investment outcomes. Admin functions, like rebalancing investments or transferring funds between accounts—perfect candidates for a computer program.

But in the robo-world, emotions are tamped down and removed from the equation. What’s best for the investor is what the model purports to reveal. Yet we know a computer program doesn’t solve all problems; money is still complicated, emotions are a part of the process, humans still want and value human guidance.

Still, for the wealthy and those starting out, the robo solution is leveling the playing field and improving the client experience. The benefits—online access, transparency (being able to easily see what you own), the unburdening of those small hassles of account management—add-ons, withdrawals, opening new and linked account types—those benefits are for everyone.

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