Robo-advisers: An Increasingly Popular Alternative To Traditional Wealth Management
The term “robo-adviser”, which describes an automated class of financial adviser, has become increasingly popular amongst retail investors. With asset management giants such as Vanguard offering increasingly sophisticated digital wealth management services, operating a personal investment portfolio has become more accessible to members of the general public. Depending on the consumer, the automated nature of robo-advisers possesses some advantages over their human counterpart. The most notable advantage is pricing. Personal advisers are often remunerated on a salary basis and can provide more nuanced services for complex financial matters, rendering their services more expensive. Robo-advisers, however, do not require a wage and are capable of routinely managing investment portfolios subject to retail investors’ specifications.
Hearts & Wallets, a data and consulting firm, has estimated that 45% of US households have knowledge of or have been a client of prominent asset management firms. With the most prominent asset management firms offering digital wealth management services, retail investors have a more varied choice of account management methods to select from. This breadth of choice has been of particular benefit to younger retail investors that have lower amounts of capital on average. Fledgeling retail investors seeking to test the waters of financial markets also benefit from the accessible nature of robo-advisers. Without having to pay for consultations with experienced personal advisers, robo-advisers can be a suitable introduction into wealth management for inexperienced retail investors.
The appeal of Robo-advisers is not limited to younger audiences, however. A recent research paper released by Deutsche Bank records a high average of people between 45- and 54-years olds using robo-adviser services in Germany. This could be because retail investors with considerable experience are confident in not requiring personal advisers to help manage funds on their behalf. Instead, they can be comfortable in managing their personal investment portfolio through editing the specifications of their Robo-adviser to their liking. The cost factor is also of benefit to experienced retail investors that would prefer not to invest extra capital in a seasoned financial adviser.
With the benefits of robo-advisers seeming to appeal to a broad range of retail investors, the future of digital wealth management services appears bright. Although traditional wealth management advice remains on average a reliable option for investors, digital wealth management services are slowly gaining traction as more people become comfortable trusting machines with their capital.