2016 was a great year for robo-advisors, who continued their disruptive march on the traditional wealth management sector
Times are indeed changing in the wealth management industry. At first, it was startups offering Robo-advisors and related services, but the last few years has seen retail investing giants like Charles Schwab enter into the game to grab a slice of the action.
According to research and consulting firm Corporate Insight, Robo-advisors have experienced an extraordinary amount of growth. After analyzing 11 leading robo-advisory firms this month, Corporate Insight found that there has been a 21% increase in funds under management since its last study in July and a 65% increase since April.
In the past, investors with small amounts of money found it difficult to invest. They were confronted with high minimum investment requirements that priced them out of the market. Unlike most traditional financial managers, robo-advisors don’t require you to have significant amounts of money to start investing. You can start with as little as $100, and some have no minimum requirements at all.
In contrast, traditional financial management services usually carry high fees. By utilizing software programs powered by algorithms to manage investments, robo-advisors can charge lower fees as they have far lower costs. Instead of paying 1 to 3% with a traditional adviser, robos charge around 0.25 to 0.6% on average.
While robo-advisory services were initially thought most suited for investors with small amounts of money, they have started gaining popularity with high-net-worth investors. A report by A.T Kearney predicts that by 2020, robo-advisors will manage about $2 trillion in the U.S.
Leading robo-advisory platforms include Wealthfront, Betterment, SigFig, Assetbuilder, Covester, Financial Guard, FutureAdvisor and Personal Capital.