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Rise of the Robos

by Benjamin Cole

The investment world already has gravitated to automated or program trading, and artificial intelligence for portfolio management. Now, robo-advisers are increasingly being deployed for low-cost customer investment advice and management via online services, without human intervention.

By 2020, about $2.0 trillion will be under the management of robo-advisers, estimates consulting firm A.T. Kearney in a June report titled Hype vs. Reality: The Coming Waves of “Robo” Adoption. In terms of market share, in a short five years the robos will have more than 5 percent of market, adds Uday Singh, a partner in the financial institutions strategy practice at A.T. Kearney. That is up tenfold from 0.5 percent presently.

The term “robo-advisers” is a bit of a misnomer, as retail investors do not actually ever address a physical robot, or likely even an online robot avatar, when taking advantage of low-cost robo-advising.

Rather, with robo-advisers, a customer signs up online with a new aggressively venture-capital financed shop such as Betterment, Wealthfront or SigFig, or an established house such as Vanguard VPAS or Schwab Intelligent Portfolios, for what might more accurately (but less dramatically) be described as an “automated investment service.”

Many in the RIA industry have said robo-advising is the future for clients with some money to invest, but not enough to warrant personal attention and expense. The account minimums and the associated costs are lower for this automated service.

In the future RIAs may need to lower fees and cut costs or provide added value, or they may find themselves sidestepping the portfolio management trade in order to concentrate on what they do best — customized management, estate and insurance planning and issues and, yes, personal relations.

(To read a full-length feature article on this subject, see the September issue of Real Assets Adviser.)

Benjamin Cole (7continents7@gmail.com) is a freelance writer based near Korat, Thailand.

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