When it comes to investment advice, would you trust a financial professional or a robot?
A growing number of people are choosing the latter, on the belief that algorithms can provide rational and dispassionate advice at a cost well below that of traditional advisers.
A handful of automated investment startups created in the past few years now have more than US$4 billion in assets under management, according to Forrester Research.
It is a small segment of a trillion-dollar wealth management industry but growing at a red-hot pace, Forrester analyst Bill Doyle said.
“This is a more meaningful crop of disruptors than we’ve seen for many years, really since the Internet brokerages emerged,” the analyst told reporters.
Doyle said the digital investment services appeal to young adults who lack the minimum — often US$100,000 to US$1 million — for traditional wealth managers, but who want advice or management of their investments.
Robo-adviser firms often allow customers to set their preferences and let the algorithm do the rest — trading, rebalancing and minimizing taxes.
Costs are often far less than a traditional advisory firm, which might charge 1 percent or more of a customer’s assets.
Wealthfront, the largest of the new breed, announced this month it had reached US$2 billion in assets under management in just over three years.
The California startup has an investment team led by Princeton University emeritus professor of economics Burton Malkiel, the author of a 1973 book that championed “passive” investing in low-cost indices for stocks, bonds and other assets.
The strategy is based on the idea that “active” managers rarely outperform over the long term on a broad index such as the Standard & Poor’s 500, especially when manager fees are included. These firms mainly recommend exchange-traded funds that offer these blends of assets.
Other startups including Betterment and FutureAdvisor use a similar formula — turning over daily portfolio management to an automated algorithm that selects investments based on a customer’s risk profile, age and other factors, in an effort replicate broad market returns.
“More people are searching for a technology-first automated solution,” Betterment’s Joe Ziemer said.
The New York startup launched in 2010 now has 73,000 customers and US$1.6 billion under management.
Betterment’s average customer is 36 years old but its fastest growing segment is people over 50.
The mainstream financial industry has taken notice.
The large investment firm Charles Schwab this month launched its “Intelligent Portfolios,” using a similar method, without any fees beyond the underlying investment fund costs.
Schwab is likely to quickly overtake the “pure play” automated firms but will not put them out of business, according to Doyle.
“Schwab’s entry will raise this whole market. It brings credibility to this model,” Doyle said.
However, Doyle said the large investment firms have done little to appeal to young adults with relatively small amounts to invest.
Some financial advisers argue that an algorithm can never replace the personal recommendations and hand-holding a live person can provide.
“Our conversations are deeper. We talk with people about their goals, about saving for retirement, for that home they want to buy.” National Association of Insurance and Financial Advisors president Juli McNeely said. “Sometimes my biggest job is to talk people off the bridge. When there is a market panic, they want to jump. We need to talk it through so they understand what’s happening. It’s a comfort to have someone to talk to.”
Softbank Group Corp plans to keep a stake in the chip designer Arm Ltd, even if it sells a partial interest to Nvidia Corp, the Nikkei reported. The companies are negotiating terms, the newspaper reported, citing sources. Softbank might take a stake in Nvidia after it buys Arm, the report said. Nvidia and Arm might also merge through a share swap, and Softbank would become a major shareholder in the combined company, it said. The two parties aim to reach a deal in the next few weeks, the sources said, asking not to be identified because the information is private. Nvidia is the
END TO SPECULATION: The hotel’s management contract has been extended, despite reports that it wanted to end its alliance with Hyatt Hotels over a deal with Riant Capital Singapore-based Hong Leong Hotel Development Ltd (豐隆大飯店股份) yesterday said it has extended a management contract to ensure the continued presence of the Grand Hyatt brand in Taipei, ending rumors that the two sides were parting ways. “We are pleased Hyatt is able to come to terms on the extension of the management contract of Grand Hyatt Taipei,” said Kwek Leng Beng (郭令明), executive chairman of City Developments Ltd (城市發展) and Millennium & Copthorne Hotels Ltd (千禧國敦酒店). Hong Leong Hotel Development is a subsidiary of Millennium, and both fall under the Hong Leong Group (豐隆集團). The Grand Hyatt Taipei (台北君悅大飯店), owned and built by
MOVING FROM CHINA? The article did not name the company, but Foxconn, Wistron and Pegatron were among firms chosen for a production-linked incentive plan in India An Apple Inc vendor is looking at shifting six production lines to India from China, which could result in US$5 billion of iPhone exports from the South Asian nation, the Times of India reported, citing people familiar with the matter who it did not identify. The establishment of the facility would create about 55,000 jobs over about a year, the newspaper reported, not naming the Apple vendor. It would also cater to the domestic market and expand operations to include tablets and laptops, the newspaper reported. Samsung Electronics Co and Apple’s assembly partners are among 22 companies that have pledged 110 billion
’WHITE BOX’: The open platform would give local firms access to Cisco’s cloud-based mobile network to develop 5G telecom equipment and tap into the global market The Ministry of Economic Affairs (MOEA) yesterday introduced a new 5G “open lab” in collaboration with US-based information technology and networking giant Cisco Systems Inc to address the rapidly growing “white box” 5G networking equipment market. The open lab will be a platform where Taiwanese manufacturers can access Cisco’s cloud-based mobile network to develop their own 5G telecom equipment, such as small-cell base stations, network switches, modems and Internet of things (IoT) devices, a ministry statement said. The open platform would allow Taiwanese manufacturers to tap into the lucrative 5G telecom equipment market, which was previously monopolized by Nokia Oyj, Ericsson AB