Robo advisors are starting to be more and more popular, and they attract more and more customers, from which suffer legacy companies. The assets under management (AUM) at robo advisors are growing every year, and at the same time is increasing the number of robo advisors for consumers’ choice. Who are the users of robo advisors? Who can benefit from automated investing? And most importantly, is robo advising right for us?
Below you will find those who benefit from robo advisors, divided into five groups.
1) Registered Investment Advisors (RIAs) and Financial Advisors
A Registered Investment Advisor (RIA) is an advisor, firm, or company that offers investment advice. RIA is obligatory registered with either the federal Securities and Exchange Commission (SEC) or a state security body. These group of financial advisors bear a fiduciary responsibility to ensure they provide the best financial advice possible to their customers and act in their best interest.
Typically, RIAs with a $25 million budget in AUM must register with the SEC, and those with a smaller AUM amount register with state regulatory bodies.
The tendency is that companies have decided to work cooperatively with robo advisors rather than try to compete with them. And such strategy is very reasonable and has many benefits.
A combination of robo advisor features and financial advice portion of the company makes the entire profit making process more efficient. This perfect alliance allows the human advisor to carry out tasks that a robot cannot or sometimes even should not, financial planning, budgeting, and event planning are among such.
Robo advisors and millennials should all the time go together. People in their 20s and early 30s have been raised on technology, which has long ago become a part of their daily lives. As a result, robo advisors have typically targeted this segment because millennial investors want to save money and often don’t have enough wealth to warrant the attention and interest of a human advisor.
Large segments of millennials, due their great interest and custom to technologies, also simply don’t trust human advisors. These people would not trust a human advisor who could be just susceptible to the failings that will lead to financial crisis.
That’s where robo advisors enter the picture. What these automated investors do is remove the perceived “guess work” out of investing, which provides a measure of comfort and trust to millennial investors. And last but not the least, robo advisors offer lower fees than human advisors, which also makes them much more attractive to this group.
Robo advisors have become more attractive to the Baby Boomer generation which now ages and enters retirement.Robo advisors from legacy companies appeal to the wealthier portion of this demographic.
Baby boomers are likely to be wealthier than millennials and younger generations, so they are likely have a higher volume of AUM. And, according to research, about 60% of baby boomers currently use some type of financial advisor, which means they are one of the robo advisors target.
4) High Net Worth Individuals
This group can be considered as the one that holds a majority of the power over robo advisors. The reason is that they posses the majority of global AUM of the population. Meaning that only if a handful of high net worth individuals (HNWIs) place some of their wealth into robo advisors, this will have a significant effect on AUM. Moreover, 49% of HNWIs from around the world would consider using an automated advisor, so it’s very likely that this shift could occur in the next few years.
MyPrivateBanking conducted a survey of 600 HNWIs in the U.S. and U.K. and the result is: more than 70% of respondents think that automated and robo investment tools can positively affect their wealth manager’s advice and decision-making. Besides, the acceptance of robo advisors is going very fast and quite smooth.
5) Anyone Who Invests
No doubt that within the next few years, probably all virtual investing is going to become at least partially but automated. BI Intelligence, Business Insider’s premium research service, forecasts are such that by 2020 robo advisors will possess approximately 10% of all worldwide AUM. This would be equal to approximately $8 trillion.
So as clear robo advisors begin to control more global wealth, more investors would profit from allowing these automated services manage their fortune.