Millennials using apps to manage retirement

Robo-advisers aid young investors

Phoenix— Computers help us decide what route to take to the grocery store, who to date, and what music to listen to. Why shouldn’t they also decide how we invest?

Younger investors, particularly those born in the early 1980s to late 1990s known as millennials, are increasingly adopting apps and what are known as robo-advisers to make their retirement decisions for them. In the last year Betterment, Wealthfront, Acorns and others have brought in several billions of dollars in assets that used to be handled by traditional brokerages or wealth advisers.

In Betterment’s case, the largest of the robo-advisers, the company went from $1.1 billion in assets under management at the beginning of last year to $3.5 billion this year.

“In terms of the overall wealth management market, robo-advisers are tiny, a drop inthebucket. Buttheirdisruption potential to traditional wealth advising is massive,” said Alois Pirker, research director at the Aite Group, which studies wealth management trends.

Robo-advisers are brokerages that use computers instead of a traditional wealth adviser to allocate customer funds across various types of investments, similar to the way popular funds targeted at specific retirement dates allocate investments. The money goes into low-cost exchangetraded funds that own stocks and bonds. The system automatically adjusts the mix as thepersonagesoriftheirgoals change.

“The issue is not that millennialsdonothaveinterestin investing, it’s the perception that investing is inaccessible,” said Jeff Cruttenden, founder of Acorns. “The universe of investment options is too huge. Too many stock mutual funds. Too many bond mutual funds. Too many ETFs.”

Cruttenden helped launch Acorns, an app-based investing company, in 2014. Customers choose from five portfolios that range in approach from conservative to aggressive and Acorns invests in a series of ETFs that matches their investment style.

Acorns also helps customers squirrel away savings by rounding each purchase a customer makes with their linked credit or debit card to the nearest dollar and investing the change. So if you buy a $4.25 latte at Starbucks, Acorns takes the 75 cents and puts it into your investment account. Cruttenden says Acorn customers set aside $40 to $60 a month on average this way.

Computers are usually cheaper than people, so roboadvisers have been able to attract customers both with their simple interfaces and relatively low fees, Pirker says.

“These portfolios are priced at a fraction of a traditional wealth adviser,” he said.

Betterment charges customers on a scale based on how much they have invested, from as much as 0.35% of assets for less than $10,000 to 0.15% for more than $100,000.

This does not include the fees charged by the ETFs that the customer’s money is eventually invested in.

Still, wealth advisers, by contrast, typically charge 1% to 1.2% of assets to manage a portfolio, on top of fund fees.

“Wealth managers are going to have to figure out what value they are bringing to keep customers. Simple portfolio planning is not enough anymore,” Pirker said.

On the other hand, investors who want to do everything themselves can open an account at a discount brokerage like Charles Schwab or Fidelity and pay only the fund fees, which for some big exchange traded index funds can be just 0.05%.

The majority of Betterment’s customers are millennials, said company spokesman Joe Ziemer, but the older set is buying in, too. About 30% of the company’s clients are over the age of 50.