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5 Ways Robo Advisors Will Change in 2019

US News & World Report -  Money logo US News & World Report - Money 2/6/2019 Barbara Friedberg
3D visual of a humanoid robot overthinking something.: Experts say that more nonfinancial companies may start offering robo advisors for their consumers. © (Getty Images) Experts say that more nonfinancial companies may start offering robo advisors for their consumers.

The robo advisor industry began in the wake of the Great Recession with a few firms launching this service to deliver a low-cost investment management solution.

Early to the the market, Betterment and Wealthfront launched the first robo advisor services, with automated platforms providing assistance without the high fees of human financial advisors. Since then, the robo advisor industry has exploded.

As the industry and market has expanded, the features, services and investment styles of robo advisors has multiplied. From hybrid models with digital and financial advisors to app-based investing, the industry is almost unrecognizable today from its former iteration.

Today, the robo advisory landscape continues to change with new services, niche robos and even nonfinancial companies offering their own digital investment advisors. Here are five robo advisory trends that consumers can expect in 2019:

  • Financial advisors showing their value.
  • New niches for robo advisors.
  • Banking services that offer robo advisors.
  • Robo advisors that embrace sustainability.
  • Nonfinancial companies with robo advisors.

1. Financial Advisors Showing Their Value

The competition between robo advisors and human financial planners has driven costs down and forced financial planners to prove their worth. Dan Rosen, CEO of Toronto-based d1g1t, a fintech venture, actually says the robo advisory model is “basically wrong and simply a fad, at least for high-net-worth individuals.”

Rosen says the digital investment trend is going beyond simple tasks of rebalancing a portfolio and index fund investing. Advanced platforms will be driven by advanced analytics and risk management to move beyond cookie-cutter investment portfolios. The net result will yield better advice, tailored to individual investors with greater risk protection solutions, he adds.

Within the advisory market, experts say wealth planners need to show their value.

Steven Jon Kaplan, CEO of True Contrarian Investments in New York City, envisions a more limited use of robo advisors while forcing human advisors to differentiate and show their added value. While Kaplan uses robo advisors for account aggregation, he believes they must be distinguished from the customized long-term investment, tax and retirement planning of a competent wealth advisor.

2. New Niches for Robo Advisors

The Pew Research Center estimates that there were about 3.45 million Muslims living in the U.S. in 2017, roughly 1 percent of the population. By 2050, the U.S. Muslim population is expected to surge to more than 8 million.

The Islamic religion, under Sharia law, prohibits the collection of interest paid by a borrower to a lender. Sharia tenets also ban investing in companies that are harmful, such as those making tobacco, weapons and alcohol.

There are now several robo advisors that provide Sharia-compliant investing. Wahed Invest, a New York-based robo advisor, launched its own Wahed S&P halal index funds to provide investors with access to the S&P 500 Shariah, says Kareem Tabbaa, Wahed's chief product officer. Their Wahed robo advisor serves Muslim investors with affordable halal investment products.

Wealthsimple's robo advisor also offers users a halal investment portfolio option.

Other niche investment robo advisors have branched into niches that include active investment, women-focused and stock-only investment portfolios, to name a few.

3. Banking Services That Offer Robo Advisors

Robo advisors are already expanding into other financial management areas. M1 Finance and Wealthfront offer loans to their existing clients.

In the near future, M1 Spend will offer FDIC-insured checking accounts and debit cards that integrates with its existing M1 Finance platform. Like the big investment firms, this will give robo advisor clients an opportunity to meet their financial needs under one roof.

Wealthfront, another stand-alone robo advisor, is also moving into the banking sphere with direct deposit, bill pay and cash management options.

Even the micro-investing app from Acorns Grow now offers debit cards and checking accounts.

The stand-alone robo advisors that add financial services will compete with existing investment companies with robo advisors, such as Charles Schwab, Fidelity Investments and Ally Financial.

4. Robo Advisors Embrace That Sustainability

Dale Wannen, president of Sustainvest Asset Management in Petaluma, California, is all for the sustainable investing category, with both a robo advisor, Sustainfolio, and a full-service sustainable investment management firm.

More than a quarter of managed investment dollars are in the socially responsible investing category, according to the US SIF Foundation's 2018 biennial report.

“This isn’t just for those tree-huggers any more,” Wannen says. “Investors are demanding that their assets align with their values. And with so many ETFs and funds now integrating ESG (environmental, social and governance) screening, it’s kind of a no-brainer. This next generation of investors are simply not going to do business with the traditional managers that their father or grandfather had.”

5. Nonfinancial Companies With Robo Advisors

There’s a trend in robo-advisor technology and services being offered by nonfinancial companies. For example, (ticker: OSTK) broke the financial services mold by offering its customers a robo advisor for $9.95 per month with no account minimum. With a quick, two-question survey, users are funneled into one of three portfolios: conservative, moderate or aggressive. Users can also create their own portfolios made up of company stocks, but they are limited and can't choose exchange-traded funds.

Overstock is likely the beginning of the trend of nonfinancial companies entering this fintech fray. The World Wealth Report 2018 released by Capgemini found that more than half of high-net-worth individuals surveyed were interested in wealth management services offered by big technology firms. It’s possible that the next big wave of robo advisors comes from Google (GOOG, GOOGL), Amazon (AMZN) or Facebook (FB).

Ultimately, technology is changing so rapidly that the robo advisory and investment management field 10 years from now is unlikely to resemble the financial field of today. New entrants will continue to disrupt today's investment management landscape with even more services.

Copyright 2019 U.S. News & World Report


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