Automated Advisors

Overview

Automated investment advisers – so-called robo-advisors or robo-advisers – are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. A typical robo-advisor collects information from clients about their financial situation and future goals through an online survey, and then uses the data to offer advice and/or automatically invest client assets.

Robo-advisors often seek to offer investment advice for lower costs and fees than traditional advisory programs, and in some cases require lower account minimums than traditional investment advisers.  The services provided, approaches to investing, and features of robo-advisors vary widely.

Regulation

Robo-advisors must register with the U.S. Securities and Exchange Commission (SEC), just like human advisors, and are subject to the same securities laws and regulations as traditional broker-dealers. Most robo-advisors are members of the Financial Industry Regulatory Authority FINA (an industry self-regulatory organization — see Elements of Effective Regulation). Investors can use FINRA’s BrokerCheck to research robo-advisors the same way they would a human advisor.

There are an estimated 200 or so robo-advisors in the U.S. The three largest stand-alone robo-advisors are Betterment, Wealthfront, and Personal Capital, which boast assets under management of approximately $6 billion, $5 billion, and $4 billion, respectively. They all provide some combination of investment management, retirement planning and overall financial advice. Increasing, traditional asset management firms are now moving to launch robo-advisor businesses of their own.

 

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