Robotic financial advisors: Investing of the future?



If robots are running the show, they must have hidden them for our appointment.

We visited the IKEA-clad headquarters of Betterment (think better + retirement), a financial firm that some like to label “robo advisors.”

“There are people here,” said CEO Jon Stein.

Stein founded the company after stints working for some of Wall Street’s biggest names. He said he was disappointed.

“I saw them doing things to their customers that were just not acceptable,” he continued, noting fees were high and advice was often bad.

So, Stein set out to do for investing what Silicon Valley has done for many companies: Automate it.

“It’s the union of people and technology,” he said. “It’s doing things more efficiently, which means we can pass on some savings to the customers.”

Here’s how it works: Consumers log onto the Betterment website, tell it about themselves (such as age, retirement status, income, and tax situation). In the background, Betterment applies that data to algorithms that generate an investment model. You add your money, and let the computer do the work.

Betterment invests your money the same way many human advisors do. The bot puts it into stock and bond funds that are made up of companies that you know and likely patronize daily.

“We’re actually telling you how much you need to save for retirement and in which account. — here’s how much in your 401(k), how much in your IRA, your Roth, your traditional account,” he said.

Stein says it is easy. And it’s 65-percent to 85-percent cheaper than a traditional financial advisor. There are also no minimums.

“I built this for myself, for my family, for my friends, and now for 75,000-plus other people and growing by hundreds every day,” he said.

Betterment said it is managing about $2-billion. It’s a handsome sum, but just a tiny fraction of the nation’s $18-trillion in collective savings.

Other companies are competing with Betterment with similar offerings.  But so-called “robo advisors” have many critics — many of whom are human investment advisors.

A scathing review written by Wealth Management Systems, Inc., and posted to the Internet via the Morgan Stanley website, pulls no punches.

“Beware of seemingly easy solutions to complex issues,” it reads. The paper, entitled “Robo-Advisors: Not For Everybody,” warns consumers that automated investing is “limited” and “cannot provide the holistic approach that a live financial advisor offers.”

Even still, some of the country’s biggest financial firms are developing their own automated investing systems.

Betterment’s Stein says he is not trying to ring the bell on Wall Street’s titans. Betterment’s casual Manhattan office — the one with those simple IKEA desks — is a stark contrast from the big firms’ offices near Wall Street.

“I think of the competition as ‘Do It Yourself’ investing,” he said.

DIY investing is most certainly on the rise. Given uncertainty in Social Security’s future and corporations cutting pensions vanishing daily, more and more workers (especially young ones) will have no choice but to manage their own nest egg.

“Now we’re really responsible for our own retirements,” Stein said.

Stein is convinced that best course for those investors is an informed investment tool that is simple and low-cost. He says Betterment is a modern choice for a modern retirement.

“We have made it easier than anyone ever has,” he added.





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