Middle class gets in on money game with rise of ‘robo advisers’
PLATFORMS DON’T CHARGE ANY COMMISSIONS, ADVISORY OR ACCOUNT SERVICES FEES
Fuelled in part by a retirement system that increasingly puts the onus on individuals to safeguard their financial future, a growing number of US citizens are looking for professional help with their investments.
But many traditional financial advisers will not bother with clients who are not wealthy. Seizing upon this dearth of services for the middle-class and mass affluent, dozens of start-ups in recent years have launched online, automated investment platforms, known as ‘robo advisers’.
The low prices and sleek, user-friendly websites, such as that of Betterment (the first pure robo adviser to earn a spot in the FT 300), which has been called the Apple of finance, have attracted thousands of investors.
Since launching in 2010, Betterment has grown to have $2.2 billion (Dh8.1 billion) under management, while Wealthfront, another US automated investment service, has gathered $2.4 billion since its launch in 2011.
Eleven robo adviser start-ups polled last December by Corporate Insight, the researcher, were advising $19 billion in assets, up 65 per cent from $11.5 billion last April. Traditional asset managers have taken notice.
Playing catch-up
“The big incumbents are playing catch-up,” says Bill Doyle, principal analyst at Forrester Research, who tracks robo advisers. “But the incumbents have the thing that everybody needs, and that is customers.”
Charles Schwab, the discount broker with more than $2.5 trillion in assets, launched its own robo adviser, Schwab Intelligent Portfolios, in March. The company has undercut its start-up competitors by not charging any advisory fees, commissions or account services fees. As with several other robo advisers, the minimum investment is $5,000.
Schwab can afford to give up these fees because it makes money from its own ETFs that constitute investors’ portfolios and