A Robo adviser or Robo advisor is an online wealth management service that provides automated investment advice without human financial planners. They typically construct portfolios out of Exchange Traded Funds (ETFs), meaning low fees for investors. Due to their low fee structure, it is often seen as a cheaper alternative to traditional financial advisers. The first Robo advisors were launched in 2008 by Betterment and Wealthfront, but now there are several more providers.
These services are popular because people are drawn to the convenience factor. Additionally, they offer easy ways to automate savings, which can be difficult for many people due to a lack of planning or willpower. While these services have drawn large numbers into the world of investing, their relatively high fees should be considered by anyone who is planning to make regular contributions. What is a Robo advisor? Robo advisors are also used in the context of personal finance software (PFS). PFS enables businesses and individual users to access financial management tools through the internet. This includes automated investment advice, online accounting, mobile payment applications, digital wallets, banking services, and similar business purposes. PFS users manage money on a large scale while Robo-advisors typically serve individuals. Robo-advisors may be seen as part of the growing FinTech industry.
Some Robo advisors were created by traditional wealth management firms, some were created by independent startups, and others were launched as independent ventures with the goal of disrupting the industry. Most major consumer brokerages now offer their own services. The original Robo advisor was Betterment which started in 2008, while Wealthfront, who pioneered the use of technology for individual investors, was launched in 2010.
For a flat annual fee, Robo advisors will offer automated investment management services using low-fee ETFs and typically provide access to all the major asset classes, including stocks, bonds, mutual funds, and perhaps some alternative investments like commodities or real estate. The core service is an automated investment management service with portfolio allocations customized to the risk tolerance of the investor.
When it comes to fees, most Robo Advisors are very competitively priced with traditional advisory firms (See list below). Average costs range between 0.15%-0.35% for equity accounts but can be higher for smaller accounts or retirement accounts that require additional tax paperwork. [8][9][10] The cost advantage of Robo advisors is even greater for the more complex asset classes such as real estate and small business. [11]
Who do Robo Advisors target? Most Robo-advisors are designed for individual investors with a moderate level of assets who would typically have a portfolio of about $100,000 or less. Early in the industry’s history, many Robo advisors were marketed towards Millennial investors, especially those just starting to save for their financial future. However, the industry has evolved rapidly and now offers services tailored towards women, retirees, and other specific groups. Some major brokerages also use Robo advisors to offer basic investing to customers without any minimum account size requirement.
Robo advisors are savings and investment management services offered through automated online platforms. Investors pay an annual flat fee in return for portfolio allocations that are customized to their risk tolerance. The average costs range between 0.15%-0.35% but can be higher for retirement accounts or assets like real estate or small businesses, which carry additional tax filing requirements.
