by Jack Waymire
Robos are Online Financial Advisors who have automated the money management process. You select an investment objective and computer programs do the rest. The automation creates a low cost alternative for investors who are comfortable letting computers and algorithms invest their assets.
In the past, you have had a choice between investing assets yourself or selecting an advisor to help you invest your assets. But, this was not nearly as simple as it may have sounded. There are two ways to invest your own assets:
- You act as your own money manager when you invest your assets in the securities markets. For example, you select the stocks and make the buy/sell decisions.
- You act as your own financial advisor when you invest your assets with mutual funds and separate account managers. The mutual funds are the money managers because they select the stocks and make they buy/sell decisions.
Financial advisors are not money managers. They help you select the best money managers (mutual funds, separate account managers, hedge funds), monitor results, and produce reports.
The Robo advisors are acting in the capacity of online financial advisors because they do not invest direct in the securities markets. They use Exchange Traded Funds, Index Funds, and other types of money managers to invest your assets in various types of securities.
The Robos target younger investors who have smaller amounts of assets and simpler financial needs. These investors are comfortable investing in model portfolios, are usually more technology savvy, and they prefer the convenience of monitoring their results with mobile applications. They may also be more fee conscious because they have relatively simple needs and do not want to pay higher fees for services they don’t need.
Older investors may be more inclined to use the services of financial advisors who meet them face-to-face and provide tailored solutions. Their needs are more complex and they have more assets. They are willing to pay higher fees to obtain the attention they need from Personal Financial Advisors.
Based on Paladin research these five Robos have the most developed platforms:
- Wealthfront for investing
- SigFig for investing
- Betterment for investing
- Learnvest for financial planning
- Asset Builder for investing
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