by Jack Waymire
Paladin produces research reports that document all types of financial professionals and firms. An Online Financial Advisor (Robo) is a new type of firm that provides automated investment management services for reduced fees. Download our FREE ebook What is a Robo-Advisor? to learn more. Paladin has researched 18 Online Financial Advisory firms and will expand this research as new firms launch their services.
The following Infographic highlight some of the research that was conducted on these firms. This data is intended to help you learn more about robo-advisors as they gain in popularity.
Robo and advisor have two contradictory meanings. Robo refers to a robotic investment process that is driven by algorithms that invest your assets in model portfolios of ETFs and index funds. There is no need for a financial advisor because there is no human contact. There is also no personal financial advice or services. Advisors are professionals who provide financial advice and services for fees. Most advisors provide multiple services that include planning, investing, insurance, and tax services.
Communications is another characteristic that differentiates the Online Financial Advisor from the Personal Financial Advisor. Most of the Robos do not provide human contact or they limit communications to telephone and/or email. And, you may be communicating with a customer service person and not an investment professional. Personal financial advisors thrive on face-to-face contact starting with the first sales meeting.
New Financial Service
The advent of Robo Advisors is a relatively recent phenomenon. Paladin’s reports cover 18 Robo and pseudo-Robo advisory firms. 77% of them were established after 2009. And most of them have limited clientele (average is 21,756) and assets under management (average is $203 million). But, it is fair to say most investors are just beginning to learn about Online Financial Advisors. And, the Robos have to convince investors to leave their Personal Financial Advisors. It could be years before large numbers of investors move all or part of their assets to the Robos.
The Online Financial Advisor promote low fees as a reason to move from Personal to Robo. Their expenses are low because they eliminated or minimized the various layers of investment expenses. For example, the average annual Robo fee for a $10,000 portfolio is just $35. One Robo charges $10 per month regardless of asset amount. You pay separate fees to the money managers (ETFs, Index Funds) that invest assets in the securities markets. The two most frequently used investment firms are iShares and Vanguard. The firms offer hundreds of investment choices for relatively low fees. Their combined assets exceed five trillion dollars.
How to Select a Robo
How do you select a Robo? All of their sales information is on their websites. It is up to you to review the information and make your selection decision. But, you don’t have to be concerned about sales calls. Most of the Robos do not have sales departments.
You should also review the Robo research reports on the Paladin website. Pay particular attention to the Paladin Transparency Index. This measures how forthcoming the Robos are with the information you need to make the right decision. Do they provide complete information? Do they manipulate any information? Do they withhold any information?
Jack Waymire worked in the financial services industry for 28 years before he left to found the Paladin Registry (www.PaladinRegistry.com) in 2004. This investor education website was based on the Principles in Jack’s first book: “Who’s Watching Your Money? The 17 Paladin Principles for Selecting a Financial Advisor.”
The Registry also has a free service that matches investors to advisors who meet Paladin’s minimum requirements for competence and trustworthiness.
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