A New Wave of Innovations
Without even stepping foot into a store, your groceries can be delivered to your door. You can pull out your smartphone and order a car to pick you up from your exact location. You can even pay your friend back by using a mobile app with no ATM needed. Innovations are affecting every facet of our lives – from the simplest tasks to the most complicated.
So what about your financial advice? With the world around us becoming automated at an accelerated pace, even this is becoming automated thanks to the advent of robo-advisors.
Robo-advisors offer automated, digitally enabled advice to help build and manage your investment portfolio. The main difference between robo-advice and the traditional financial advice model is the elimination of the human element. The interface is fully digitally enabled with automated investing based on consumer profiles and preferences. The technology offered through these “robos” has the potential to open up the world of investing to new and untapped audiences.
So what does the development of these robo-advice platforms really mean? Here are the five key ways that robo-advice is changing wealth management by addressing larger macro-trends:
- Helps to address longevity
Thanks to a number of supporting factors, people are living longer and longer. The downside is that these individuals are often outliving their retirement savings – ultimately creating a greater demand to better forecast retirement expenses, taking into account shifting household situations (see below) and changing medical costs. Robo-advice can offer a streamlined platform to help investors plan for and address increasing healthcare costs down the road.
- Offers options for the “New American Family”
More multigenerational and blended households are creating complex and dynamic financial planning situations. At the same time, an increasing number of solo heads of households creates a different complexity, making it harder to save. Robo-advice offers accessible accounts that can be personalized based on need while offering low to no minimum balances. This can open up investing that addresses less traditional needs and may be more nimble in supporting future changes or amendments.
- Opens up a world of investment choices
These days, the average consumer looks to be empowered in most daily interactions, and the need to reach out to someone like a financial advisor can seem impractical. Without the need to rely solely on a financial advisor, the world of investment options can open up with more products, more channels, and the option for investors to expand investments and broaden their financials.
- Creating options for freelancers
Job changes are occurring more frequently (approximately every 4-6 years) and the “gig economy” has emerged as a viable option for many people. These freelancers can benefit from the freedom that “gigs” present but often lack the more established benefits that a traditional employer can provide (think 401k). Robo-advisors’ digital platforms enable freelancers to establish investment accounts on their own terms and without an established program through an employer.
- Designs more holistic financial planning
Finances can be complicated, and the average investor may not even know where to start. Robo-advice platforms help to guide investors by taking into account the larger view of their financial lives. For new investors, the thought of turning to a financial advisor can prove intimidating, but robo-advisors offer a personalized experience created through a digital platform.
What lies ahead?
The number of robo-advisor platforms seems to be growing each day. These firms have taken notice of the growing demands and preferences from investors and are working to cater to these demands. The impact of robo-advisors can be felt by both wealth management firms (competing with new distribution channels) and by investors themselves as they start to expect these kinds of digital options.
Want to learn more?
Download our one-page overview of robo-advice to understand the dynamics at play and potential impact to your business.