What the future holds for financial robotic consultants

A person who wants to invest, often makes many mistakes in their activities. It is either sales at the time of the fall of the market, or excessive trading, or something else. Investors are hoping that they can beat the stock market. But wouldn't it be better if the financial affairs kept the computer ?

An incredible number of companies base their activities on this and offer computer systems that generate financial reports . This greatly helps savings owners who are tired of paying specialists.

The cost of the services of "robot consultants" is significantly lower than living professionals. This contributed to their rapid spread. This could not frighten people investment managers.
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Slow growth in assets under management (AUM) in large firms is now observed. What is the future of this segment?

At recent rates, in order to get manager's advice, it was required to have at least a few hundred thousand dollars available that a person would like to invest.

For expert advice, they gave an amount equal to 1-3% of the client’s portfolio per year. But the consultation was mainly to rebalance among assets or try to minimize taxes.

The English edition of The Economist has calculated that the robotic Wealthfront systems from California and Betterment from New York give similar advice, taking only 0.25% per year for their work.



Such a low cost of recommendations of robots has become the main reason for the growing demand for services. Only the richest investors decided to continue to turn to expert people because of high demands.

Filling a simple questionnaire with an indication of age, income and investment goals determines the possibility of risk. Funds are most often invested in fairly cheap enterprises operated by a third party. This method will best protect the investor from such threats as commission fees and human error.

One of the features of "robot consultants" is the use of modern programs for smartphones, as well as a transparent pricing policy. The investment threshold is either low or missing completely.



Wealthfront expands investment opportunities for the millennium generation due to the low cost of services. However, a low pricing policy means that a company must have a large amount of assets in order to keep afloat. Betterment and Wealthfront have an AUM of about $ 2.9 billion each. The amounts that were raised a couple of years ago, today brings about 7 million revenue per year.

For companies that have hundreds of employees and a large marketing budget, such amounts are not enough. And although Wealthfront and Betterment do not disclose their accounting, experts estimate that the costs are about $ 40-50 million per year.

The scale is of paramount importance, since each new client is a source of income, while the costs are small. To achieve profitability, their AUM must equal hundreds of billions of dollars.

Investors assumed that they would initially incur losses. With that, they have invested about 100 million dollars in each project. Profit they expect the next few years.

Over the past year, there has been an increase in AUM reaching 10% every month. Soon he slowed to 5%. And if initially Wealthfront were proud of their performance in public, now they are trying not to raise this issue.

At the moment, the company claims that its assets are less than $ 3 billion. From this we conclude that it will be possible to double them no sooner than in 1.5-2 years. Betterment situation is only a little better.

Adam Nash, head of Wealthfront, notes that asset price fluctuations are much more important than AUM. Both brands claim that there is an influx of customers and the situation begins to change for the better.

And although companies manage to raise more than $ 100 million, this amount is not enough. With the current performance of AUM, firms will have nothing left but to raise prices and expand services. Or put yourself up for sale.