Wealth Management firms are going through a dynamic shift—from a traditional approach to a trendy one—attracting millennials by introducing robo-advisory platforms. The drivers for these robo-advisor firms are account minimums which are in the low four-digit numbers, lower fee and demographic advantage. Robo-advisor services can quickly provide customers with well-diversified investment portfolios suitable for their risk tolerance and long-term investment objectives. Due to such convenient and low-priced service offered by this technology, a growing number of startups and traditional investment firms are also turning towards it. Here are some of these firms:
1. Nutmeg: Specializing in investments, ISAs and pensions, the company provides an online investment service that’s intelligent, straightforward and fair. Until now, the company has received $37.3 million in two rounds of funding. The company was founded in 2012 and has around 50,000 users. Nutmeg invests in a diversified portfolio tailored to client goals, such as for a pension, child's education or a wedding. Pricing: Nutmeg charges an annual fee of between 0.3% and 1% depending on the size of investment, below typical wealth management fees.
2. Aspiration Fund Advisor: The company was launched last November and it aspires to sell high-end products to low-end customers. The strategies are built on deep research and constant analysis by professionals. The company donates a dime out of every dollar it earns to successful charities focused on bringing economic opportunity to struggling Americans. Aspiration uses a “fund of funds” approach. The Aspiration Flagship mutual fund will invest in so-called alternative funds that pursue hedge-fund-like strategies including arbitrage and long/short trading. The company offers two products:
- Flagship fund: A mutual fund with a $500-minimum investment that has the goal of long-term growth with less volatility than the stock market.
- Summit Account: A high-yield checking account offering 1.00% APY, no monthly service fees, and free access to any ATM in the world.
Pricing: Aspiration has a unique pricing structure compared to other advisory firms where customers choose their own fee. Still, even if an investor chooses a zero fee, the underlying asset management fees are about 1.22% a year. Aspiration also asks for a fee to offset operating expenses like legal and administrative services, which are capped at half a percentage point. That is a combined 1.72% of fund assets a year. The company does not participate in any revenue-sharing of the fees received by its money managers.
3. Robinhood: Robinhood, a Silicon Valley upstart, is courting young investors with as little as a few dollars to invest. The year-old company based in Palo Alto, Calif., promises to let investors trade without a fee or commission. A dead-simple interface lets you buy and sell stocks with a minimum of taps and no fees. Elegant charts show you a stock’s performance over time; in a nice touch, the color notifications show when the markets are open. The app’s home screen shows you the performance of your entire portfolio. It also plans to offer premium advisory services. The total funding raised by the company is around $66 million which was led by investors such as New Enterprise Associates (NEA), Index Ventures, Ribbit Capital and Social Leverage
Pricing: The company collects interest from customers who choose to upgrade to a margin account. The company is testing margin in beta and will offer margin accounts later this year.
4. GuardVest: Founded in 2013, the company allows you to confidentially and securely link your account using Intuit, and in just a couple of minutes, give you a grade on your returns, your risk, and your expenses. GuardVest looks at your portfolio and measures the risk, returns and expenses and gives you a sense of whether each one is above or below average. The company judges portfolio along three basic criteria. There are also sample portfolios to compare against to get a better idea of where you stand against the crowd.
With the growing market of robo-advisors, banks and other traditional investment firms are also getting into it. Some of these firms are:
5. Charles Schwab: This year, Charles Schwab recently launched a new service called Schwab Institutional Intelligent Portfolios. The service is a fully customizable automated portfolio management product that will give every advisor on their platform the same tools and options that the other robo-advisory services have (automated rebalancing, tax loss harvesting, etc.). Now, Schwab Intelligent Portfolios makes professional advisory services available to anyone with $5,000 to invest. To build and manage your portfolio, Schwab Intelligent Portfolios uses an advanced algorithm and the professional insight of the Charles Schwab Investment Advisory, Inc. (CSIA) team. You will get a diversified portfolio composed of low-cost exchange-traded funds (ETFs)—all handpicked by the CSIA team.
Pricing: The company charges no advisory fee, account service fee and no commission is charged.
6. National Bank of Canada: Montreal-based National Bank of Canada unveiled a robo-advisor platform in 2014 named as Invest Cube. The platform operates through National Bank Direct Brokerage Inc., a wholly owned direct subsidiary of the bank. It is not a traditional robo-advisor platform but the asset mixed in each client’s portfolio is rebalanced automatically through the bank’s platform.
7. Bank of America: According to a report, the US bank is all set to invade the robo-advisory market. The firm will work on an automated investment prototype for Merrill Edge, which targets accounts under $250,000. The bank is planning to unveil this service in 2016. According to a company spokesman, Bank of America sees an opportunity “for a robo-advised offering that could complement the advice and guidance offered by bank’s financial solutions advisers.”
8. Bank of Montreal: The Canadian bank is supposed to roll out its robo-advisory services by the end of the year. The bank’s brokerage division, Nesbitt Burns Inc., is expected to enter the market for automated online advice. BMO’s wealth management segment has been their fastest-growing segment over the past five years and was the recipient of the Best Wealth Management in Canada award from Global Banking and Finance Review.