November 21, 2016
Hundreds of startups are trying to shake up the investment world with the so-called robo-advisor offering, and that is nothing new. The incumbents have not only taken notice but also embraced and latched on to the opportunity. Vanguard launched a robo-platform in 2015 and now manages $41 billion in assets. Fidelity launched Fidelity Go, BBVA launched a robo-advisor in partnership with Future Advisor and others such as Charles Schwab and BLACKROCK aren’t lagging behind at all. We will come back to the effectiveness of each model next year but some people estimate that robo-advisors will account for more than 5% of investment portfolios by 2020. That is impressive and can get anyone in this space excited enough to leave their job at the incumbents and start on their own. But let’s take a few steps back:
Before we go any further, I would like to highlight some of the issues faced by consumers in wealth management or investments. First of all, if you have less money to invest, it will usually mean substandard advice. The size of the investment is directly proportional to the quality of the advice in this space. Fees have traditionally been very high; this has either kept people away from investing or has made them to go for bad advice.
Another thing to notice is that quant models and quantitative trading simulation tools have existed at larger scale investment vehicles (hedge funds, etc.) but not accessible to the c ...