Automated Investments? Where does WSO stand?

I've been seeing a plethora of automated investment engines/robo advisors (think Wealthfront, Betterment).

Having not tried any of them before, would like to get some feedback on how well do these work and where the trajectory of the sub-industry will move towards. Would love to see some seasoned IA veterans chime in on the topic.

 

They are great. If they only get one more person to invest in their future they are benefiting society.

Now they will cause some issues in the AM industry but the industry will just have to adapt like they have to other things in the past.

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Best Response

I think that in its current form, it does not pose a threat to investment management as a whole - these advisors come out of the active/passive debate with a belief that passive is the best solution, so those who believe in and want passive management can now also have a passive solution to all the complexities of investing. It's a good sell for those who have money they want to save, don't necessarily have the time to invest their money and assume that all things will be okay in the long run. Never used them myself, but from my understanding, you're getting passive ETF/Mutual Fund investments, no investment minimums (like Vanguard does) and you're getting some tech customer service and tax loss harvesting.

If you're starting out and beginning to save and want a place to put your money, I think this is a great place to start, though you could probably do better if you educated yourself and made a solution specifically for your own time horizon/risk. But if you're saving for retirement and have an employer, use 401ks - those are already tax advantaged and your employer will probably give you a match, lower fees and a target date fund that wouldn't be too different from these robo advisors.

Like the way that personal brokers have gone away, I think this serves mainly to compete with the financial advisors/RIAs of the world and with the exception of very wealthy individuals, I think that has already been on a downward trend since the advent of passive management, not necessarily robo advising. If you're thinking about disruption within investment management, I think startups like Motif are the ones that will be changing Asset Management and giving people cost and asset efficient access to investment themes rather than buying a chunky large cap growth mutual fund that will likely underperform after fees...

 

I don't think it's the bull market as much as it is the tech cycle. Naturally, people found it necessary to "tech 2.0" investing and thus came robo-advisement with VCs pouring billions in because why not it's tech. I think a lot of the asset growth for these advisors come from tech guys who put all their money into more tech related stuff - from my observation tech guys are quite loyal and support as many new startups as possible. From a business perspective, passive is great in that advisors can't be blamed when things go bad because they blame you for making your own asset allocation decision of x% equities, and they have no apologies for the management because passive means you're getting what the market gives. Makes sense that passive is the go-to form of robo advising.

 

these will work well for investors who have the fortitude to stick with a strategy and can't conceive paying someone to do it for them. they are great tools for DIY types who want to invest time & energy into understanding common financial issues, but the key (as with most things) is staying invested. I think they will serve a valuable role to less wealth investors or those who are building wealth, and I think they will cause brokers who are not holistic to have to exit the business, but I don't think they will kill the advisory industry.

I think it's important to note that these are coming during a bull market. there was an interesting article by the economist citing the slowing growth of these firms, will be interesting to see what happens going forward. (http://www.economist.com/news/finance-and-economics/21677245-growth-fir…).

I think we can peacefully coexist, but don't think this is the end all be all of financial planning.

 

I've had an Interactive Brokers account for a few years, that I manage extremely passively. I'm moving that money to Schwab Intelligent Portfolios soon given the 0 cost and the extremely cheap investment options. WiseBanyan, to my knowledge, is the other free provider, but the investment options (ETFs) carry a higher expense ratio.

Those are the top two in my opinion (WiseBanyan has a lower minimum, Schwab I believe is 5K). Definitely better than Wealthfront or Betterment, who charge maintenance fees, but I'm sure those will be deteriorating shortly.

I also have a RobinHood account for fun. So far so good.

 

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