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The Future of Private Wealth Management. Robots Are Taking Over As Your New Financial Advisor

Wealth management is usually associated with high net-worth individuals who have significant funds and need a professional to invest them.

But this is no longer the case.

Today, wealth management is open to anyone. From college students or newbies with as little as $500 in their accounts to mom-and-pop investors, professional money management has never been such an affordable service.

Nowadays everyone can take advantage of wealth management solutions and it is all thanks to technology.

My name is Alexander, founder of daytradingz.com. Today we take a closer look at the role of robots in the future of private wealth management.

Artificial Intelligence Helps Wealth Managers Serve Their Clients Better

As global wealth builds up, professional money managers today have more clients to serve. This requires more time and reduces the efficiency of their businesses. Employing robo-advisors allows wealth managers to serve more clients, much more easily, efficiently and with fewer resources. An interesting insight industry report reveals that:

  • 93% of wealth managers intend to integrate AI in their business in the future;
  • 67% of the high net-worth individuals see the need of using AI;

According to the EY Global Wealth Model, the net investible assets will top $69 607 billion by 2021. Such figures reveal the real potential within the market. In order to take advantage of it, wealth managers need to optimize their business models and increase their efficiency when serving clients. Yet, this is not an easy task, considering the fact that more than 30% of the current workforce will retire in the next 10 years and the industry will need to train nearly 240 000 advisors to maintain its current level of service.

To navigate these issues seamlessly, companies turn their attention to technology. By adding an AI-based wealth management service to their business, professional money managers have one main goal – to serve not only HNW individuals but clients with all types of needs and investing goals. AI is intended to take the burden of servicing novice and mom-and-pop investors, while human consultants focus on satisfying the needs of their richest clients. 

AI Brings Wealth Management to the Masses

A decade ago, wealth management was basically an expensive private consultation with a professional advisor. Today, it is an online filing of an application, intended to draw conclusions about the investors’ risk profile and profit aspirations. The reason for that change was the need of bringing the service to the masses. And all this happened thanks to technology.

Statistics point out that, currently, there are more than 25 million users of robo-advising services. The figure is expected to reach 121 million by 2022.

Transparency, stricter control of funds, personal advice, individually-tailored solutions, lower fees – nowadays investors are bringing new expectations to the table.

In an ever-developing industry like the wealth management one, AI-based advisors seem like the perfect answer for clients and their shifting preferences. 

Accenture’s report concludes that all types of investor groups share one and the same desire – to lower their money management fees.

When it comes to wealth management services, 90% of Baby Boomers, 91% of Generation X and 93% of Millennials consider lower costs as one of the most important factors. 

The benefits that the automated wealth managers provide investors with, in a nutshell:

  • Lower management fees;
  • Lower or even no investible minimum;
  • Professional consultation without having to leave home;
  • Transparency and constant monitoring of the asset allocation in the portfolio;
  • Flexible and individually-tailored solutions;

Quote: “In the future, wealth managers will be selling outcomes, not traditional investment products.” -Future of Wealth Management Report” Accenture-

AI Has Even Reached the World of Day Trading And Speculative Investing

Artificial intelligence does not stop even in the field of speculative investments. The company Trade Ideas from the Californian Encinitas belongs to the INC. 5000 and thus to the fastest growing companies in the United States.

In 2018, Trade Ideas ranked #3012 with a 3-Year Growth of 134%. Founded in 2002, the company specializes in the AI-based evaluation of trading strategies and is the leading providers in this segment with its stock scanner Trade Ideas A.I. Pro.

Trade Ideas artificial intelligence tool HOLLY generates optimized and tested trading strategies every trading day. In 2018 HOLLY’s performance after commissions in the so called risk-on mode was +94.1% while the $SPY index fell 4% over the same period.

Key Takeaways

  • Robo advisors are the future of private wealth management and revolutionize the way of investing.
  • The next few years are about to strengthen the new business model that has paved its way in the wealth management industry.
  • Robo-advisors will serve the majority of clients, while human money managers will be focused on their most valuable clients. This symbiosis will help wealth management companies optimize their operations, while at the same time, will bring to the masses a service that, a while ago, was considered too expensive for the ordinary investor.
  • The highest potentials is undoubtedly the low-cost ratio of robo advisors. These are feasible because algorithms replace personal advisory services. Low costs are important to archive the best possible overall performance.

Current Fee Structure (as of March 2019)

Company Fees p.a.
Schwab Intelligent Portfolio None
M1 Finance None
Betterment 0.25%-0.4%
Wealthfront 0.25%
​Vanguard Personal Advisor Service 0.30%
Fidelity Go 0.35%-0.4%
Personal Capital 0.49%-0.89%

4 Comments

  1. Dividend Calc
    Dividend Calc April 3, 2019

    At least with AI we don’t need to worry about fiduciary agreements! I love that risk-on mode is a feature. Very interesting article.

  2. Xrayvsn
    Xrayvsn April 4, 2019

    It is great to see the fees trending downward. I recently read a post on Charles Schwab’s roboadvisor and its lowered fee structure. As a DIY investor I have no problem running it through a roboadvisor if it is free to see if I’m correct in my philosophy or if there is things that can be gained.

    The biggest issue is I’m with Vanguard and don’t want to transfer it to Schwab just for roboadvisor savings. Hopefully Vanguard follows suit soon.

    • FullTimeFinance
      FullTimeFinance April 7, 2019

      It’s always good to get a second opinion.

  3. Alexander
    Alexander April 5, 2019

    Competition between robo advisors is good for all of us and going with the market leaders is always a good way to go.

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