[youtube https://www.youtube.com/watch?v=L90ywD3vc1s]
By now most people have at least heard of the term “Robo Advisors”. They’re not really robots, but are in fact software programs, designed by humans, that use highly effective algorithms to manage investors’ portfolios.
These automated investment services offer a lower initial investment and are significantly cheaper in terms of management costs. Your portfolio is automatically customized using your personal data and investment goals.
Currently, robo advisors handle over $70 billion in investments. This may sound like a large number, but with over $32 trillion in investable assets in the United States, the percentage is actually quite small.
The principles behind this form of investing began in the late 1990s, but it didn’t really take off until 2010, just a couple years after the recession. The main reason for its growth is the shifting demographics in our country.
Baby Boomers and their parents account for about one-third of the population, yet they control 83% of the wealth. Over the next 15 years a major shift will take place in our economy in such a way that Generation X and Millennials will begin to take possession of the majority of wealth.
How is this significant? Baby Boomers have traditionally relied on personal investment advice, done largely face to face or over the phone. But beginning with Generation X, a shift to more technologically-based information-gathering and investing has occurred, threatening the future of investment professionals and the personal advisor industry.
Large investment companies have taken notice of this trend and are acting accordingly. Investment advisors are not going to disappear, but the landscape will look much different and the fate of personal advisors lies in their ability to adapt and work with current and future technology.
Bottom line, there are still a lot of unknowns with this newer investment technology. We have yet to go through a prolonged bear market with robo advisor technology at the helm. There is a lot to be learned in the new investing structure, but time will ultimately determine how and at what rate changes will be made and implemented.