For RIAs looking to propel themselves into the future of investment advisory, strapping robo-advisors to your business can be your jet. While this technology is not new and was first popularized in 2008 by Betterment, many traditional RIAs have lagged in its adoption.
What Robo-Advisors Can Do for Your RIA
Commonly, RIAs implement robo-advisors to free up their time so they can focus on cultivating client relationships. Since robo-advisors can execute the most basic functions of advisement, such as portfolio rebalancing or dollar-cost averaging, individuals at an RIA have more time for complex investment planning. Many RIAs also enjoy the limited liability associated with robo-advisors. It is much more difficult, for example, to accuse an RIA of breaching their fiduciary if an algorithm is their advisor.
The growing generation of investors, millennials, are looking for investment options that feel natural to them, and automated advising feels like breathing. It delivers investment advisement in a vehicle they are using all day: applications.
The lower barrier to entry is enticing for this cohort. With lower fees, minimum investments, and limited human interaction, robo-advisors are an attractive option for millennials looking to invest responsibly. Additionally, as reflected by the popularity of trading platforms like Robinhood and a subsequent increase of novice investors, robo-advisors are an ideal option for that clientele. They can build their own portfolio using algorithms based on their risk tolerance and investment goals; robo-advisors are an excellent way for new investors to get started.
What Robo-Advisors Can’t Do for Your RIA
The algorithm isn’t always correct. Robo-advisors are not a sweeping solution, nor should they be utilized exclusively. Human decision-makers are still indispensable and a pillar of fiduciary duty. You are making the right choice for your client, not blindly letting an app do it for you.
The necessity for a hybrid model is best demonstrated by Wealthfront, a notable robo-advisor, who recently upended their fully automated approach to offer hands-on advising. Dan Carroll, Wealthfront co-founder and chief of strategy, claimed, “We can [invest] in a fiduciary way. We care what is in your best interests.”
For clients with a large number of assets under advisement, or those unsure about their investment objectives, human guidance is paramount. The rapport between client and advisor is invaluable and cannot be easily replaced, no matter how sophisticated robo-advisors become. For now, there are limitations to the capabilities of robo-advisors.
For RIAs looking to grow and expand, we find key c-suite talent to strike that delicate balance of technological innovation and client relations.