GIVEN the many mistakes that human investors are prone to—selling after a market tumble, trading too often, believing they can beat the stockmarket—dealing with money is perhaps best left to computers. That is the premise behind a host of firms selling computer-generated financial advice, which assist savers tired of paying for pricey human counsel. The low cost of these “robo-advisers” had helped them grow rapidly, to the horror of conventional money-managers. But growth in assets under management (AUM) at the biggest outfits has sagged recently, and with it the upstarts’ prospects.
It used to be only those with hundreds of thousands of dollars to invest, if not millions, who could afford advice about where to put their money. Humans charge 1-3% of their clients’ portfolios every year, simply to rebalance among asset classes every so often and do clever things to minimise taxes. Robo-advisers, led by Wealthfront, a Californian outfit, and Betterment, based in New York, do much the same, but for a mere 0.25% or so a year.
Largely because they squash fees, robo-services do a good job for anyone bar the very rich...Continue reading
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