27 ms·

The State of Robo Advisors – Personal Financial Advisors as a Service

19 points by vimarshk 11y ago

Jemaclus 11y ago
What I don't see here is what I'm most interested in: how effective are robo-advisors? What percentage of the time do they beat the market, if ever? Am I better off simply investing in S&P 500 or a Vanguard target fund? Or does FutureAdvisor or Betterment or Wealthfront provide some unseen benefit? FWIW, I've seen stats that suggest that 85% of advisors (robo or otherwise) perform below the S&P 500, which frankly is not a great sign for that industry.
- evanpw 11y ago
  At least the big two (Wealthfront and Betterment) aren't trying to beat the market. They're basically just keeping your portfolio balanced between low-cost ETFs (like Vanguard's) representing different asset classes, and harvesting tax losses to reduce your capital gains taxes. I've heard them described as just a front end for index funds [1]. [1] http://www.bloombergview.com/articles/2015-03-18/would-you-be-ok-with-a-robot-managing-your-nest-egg- http://www.bloombergview.com/articles/2015-03-18/would-you-b...
- vimarshk 11y ago
  Am I better off simply investing in S&P 500 or a Vanguard target fund? Or does FutureAdvisor or Betterment or Wealthfront provide some unseen benefit? >> The space is relatively not mature yet to be able to gauge effectiveness. Time will tell. However, what we observed was some robo advisors are creative in a way to prevent losses. Also, another observation was who is in their team. Sometimes we see prominent brokers/experts on the team which may/may not translate to a better return, while there are clearly some who do not have stock investment experts which translates to weaker investment strategies.
- runamok 11y ago
  I use betterment and vanguard. Betterment allows me to set up a monthly contribution and it allocates that to a variety of domestic and internatiknal index funds as well as bonds. They also rebalance automatically. With vanguard you have to have a minimum of $3000 for most funds. I think once you have 3k in a given fund I think it is easy to make auto deposits with vanguard too.
groby_b 11y ago
... which says nothing about the state of Robo Advisors, and a lot of the state of the business of running a Robo Advisor.
- jsprogrammer 11y ago
  The purpose of Robo Advisors is to generate fees for the businesses running them. Article seems on point.
  - vimarshk 11y ago
    The target audience for the Robo Advisors are people approximately between 25 and 35 who have large amounts of money to invest but no time. The issue is there are not very many of them. Hence, they have to get huge distribution to get more AUM. The AUM growth translates to more fees. Looking at their margins they have a long way to go to hit considerable revenue. This also highlights the fact that these companies have massive valuations fueled by investments from VCs with exits very far away in the future.
    - jsprogrammer 11y ago
      It seems more like the target audience of Robo Advisors is VCs looking for passive income on trivial transactions.
harmegido 11y ago
I think there are legitimate hurdles robo-advisors need to climb to convince potential clients to join. Investing is something that should be done with a fairly long time-frame (10+ years). Of the companies listed here, how many do you think will exist in 10 years? The concern isn't that your money will disappear once the company folds (though maybe this is a fear some have), but rather that it will create a large burden once it happens, and possibly have tax implications? I doubt we will see many of these companies convince older folks to trust them with their money, at least not for a little while. I say this with the experience of having some money in WiseBanyan, which appears to be superior on cost to most of the others out there, except that it looks like it's losing the publicity/marketing/AUM race, so my fear is that it will fold. It's keeping me from putting more money there.
- jsprogrammer 11y ago
  I think that the whole space may suffer from the, "If they are so good at making money from money, why do they need to solicit my money? Why don't they take their own money and use their own strategies to make their own profits?" problem. Maybe I am wrong. Is there a 0-cost Robo Advisor (that actually produces real returns) in existence?
  - AjithAntony 11y ago
    > If they are so good at making money from money, why do they need to solicit my money? You mean the VC's? Because the strategies of these conservative robo advisors is far from the kind of expected return that a VC wants. You mean the customers? Why pay anybody to manage a stock portfolio? Each one has a slightly different value proposition, but in the end, it is just easier. It is valuable to some people. Just like paying anybody else for a service. > Is there a 0-cost Robo Advisor Wisebanyan is going with a "free" service and upselling extras. I don't forsee it going well unless their costs are actually low. I do have an account with them and 4 other robos. > (that actually produces real returns) in existence? You mean for the VCs? dunno. For customers? Of course. Most are just index funds. If the market is up then they all had real returns. Did you mean real returns in excess of some alternative? Depends on the alternative.
darknight83 11y ago
This is an interesting area for startups. Are there any regulations to become a robo advisor
- vimarshk 11y ago
  This area is heavily regulated. Even though these companies are not public they have to submit their AUM and other operational details to SEC.

19 points by vimarshk 11y ago

What I don't see here is what I'm most interested in: how effective are robo-advisors? What percentage of the time do they beat the market, if ever? Am I better off simply investing in S&P 500 or a Vanguard target fund? Or does FutureAdvisor or Betterment or Wealthfront provide some unseen benefit? FWIW, I've seen stats that suggest that 85% of advisors (robo or otherwise) perform below the S&P 500, which frankly is not a great sign for that industry.

evanpw 11y ago
At least the big two (Wealthfront and Betterment) aren't trying to beat the market. They're basically just keeping your portfolio balanced between low-cost ETFs (like Vanguard's) representing different asset classes, and harvesting tax losses to reduce your capital gains taxes. I've heard them described as just a front end for index funds [1]. [1] http://www.bloombergview.com/articles/2015-03-18/would-you-be-ok-with-a-robot-managing-your-nest-egg- http://www.bloombergview.com/articles/2015-03-18/would-you-b...
vimarshk 11y ago
Am I better off simply investing in S&P 500 or a Vanguard target fund? Or does FutureAdvisor or Betterment or Wealthfront provide some unseen benefit? >> The space is relatively not mature yet to be able to gauge effectiveness. Time will tell. However, what we observed was some robo advisors are creative in a way to prevent losses. Also, another observation was who is in their team. Sometimes we see prominent brokers/experts on the team which may/may not translate to a better return, while there are clearly some who do not have stock investment experts which translates to weaker investment strategies.
runamok 11y ago
I use betterment and vanguard. Betterment allows me to set up a monthly contribution and it allocates that to a variety of domestic and internatiknal index funds as well as bonds. They also rebalance automatically. With vanguard you have to have a minimum of $3000 for most funds. I think once you have 3k in a given fund I think it is easy to make auto deposits with vanguard too.

groby_b 11y ago

... which says nothing about the state of Robo Advisors, and a lot of the state of the business of running a Robo Advisor.

jsprogrammer 11y ago
The purpose of Robo Advisors is to generate fees for the businesses running them. Article seems on point.
- vimarshk 11y ago
  The target audience for the Robo Advisors are people approximately between 25 and 35 who have large amounts of money to invest but no time. The issue is there are not very many of them. Hence, they have to get huge distribution to get more AUM. The AUM growth translates to more fees. Looking at their margins they have a long way to go to hit considerable revenue. This also highlights the fact that these companies have massive valuations fueled by investments from VCs with exits very far away in the future.
  - jsprogrammer 11y ago
    It seems more like the target audience of Robo Advisors is VCs looking for passive income on trivial transactions.

harmegido 11y ago

I think there are legitimate hurdles robo-advisors need to climb to convince potential clients to join. Investing is something that should be done with a fairly long time-frame (10+ years). Of the companies listed here, how many do you think will exist in 10 years? The concern isn't that your money will disappear once the company folds (though maybe this is a fear some have), but rather that it will create a large burden once it happens, and possibly have tax implications? I doubt we will see many of these companies convince older folks to trust them with their money, at least not for a little while. I say this with the experience of having some money in WiseBanyan, which appears to be superior on cost to most of the others out there, except that it looks like it's losing the publicity/marketing/AUM race, so my fear is that it will fold. It's keeping me from putting more money there.

jsprogrammer 11y ago
I think that the whole space may suffer from the, "If they are so good at making money from money, why do they need to solicit my money? Why don't they take their own money and use their own strategies to make their own profits?" problem. Maybe I am wrong. Is there a 0-cost Robo Advisor (that actually produces real returns) in existence?
- AjithAntony 11y ago
  > If they are so good at making money from money, why do they need to solicit my money? You mean the VC's? Because the strategies of these conservative robo advisors is far from the kind of expected return that a VC wants. You mean the customers? Why pay anybody to manage a stock portfolio? Each one has a slightly different value proposition, but in the end, it is just easier. It is valuable to some people. Just like paying anybody else for a service. > Is there a 0-cost Robo Advisor Wisebanyan is going with a "free" service and upselling extras. I don't forsee it going well unless their costs are actually low. I do have an account with them and 4 other robos. > (that actually produces real returns) in existence? You mean for the VCs? dunno. For customers? Of course. Most are just index funds. If the market is up then they all had real returns. Did you mean real returns in excess of some alternative? Depends on the alternative.

darknight83 11y ago

This is an interesting area for startups. Are there any regulations to become a robo advisor

vimarshk 11y ago
This area is heavily regulated. Even though these companies are not public they have to submit their AUM and other operational details to SEC.