Bye, bye people: 'Robo-investing' becoming increasingly popular

Brett Smith for redOrbit.com – @ParkstBrett

In addition to defiantly clinging to their AOL email addresses, there’s something else older generations are more likely to do compared to Gen Xers or Millennials – stick to conventional investing instruments.

However, like every other industry on Earth, the financial sector is slowly being taken over by computers and new ways of investing have come with the technology.

New-fangled tech

Dubbed “robo-investing,” mostly by people of a certain age, algorithm-backed investments are becoming increasingly popular with young professionals. The shift towards these instruments is taking place at the expanse of less investment in traditional investment vehicles, which are piloted by humans – not machines.

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“[Robo-investing] seems to be uniformly a term used by older financial advisers to make fun of the new-fangled tech that these kids are using,” Adam Nash, chief executive of the automated investment service Wealthfront, recently told the BBC. “Expedia is not a robo-travel agent; I don’t buy movie tickets on my robot phone.”

The emerging trend is founded on the intersection between tech and finance, and Wealthfront is just one of many companies looking to leverage computing power for personal investing. While simply adopting the technology isn’t expected to guarantee an individual company success, many observers are expecting a few automated investment companies to become the next eBay or Amazon of their sector.

Jon Stein, the founder and chief executive of automated investment service Betterment, told the BBC that his company fully automates many of the processes associated with personal investing, something younger investors are keen to see.

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“We do everything from end to end,” Stein said. “We do your statements and tax integration; we do all the ACH (Automated Clearing House) transactions; we do the accounting and record keeping.”

“We are able to make that process much more efficient and optimized around trading personalized portfolios,” he added.

Fee as a bird

This automation also eliminates many of the service fees associated with traditional investments that are typically run by a fund manager. Nash said many younger investors, perhaps used to getting things for free over the Internet, see these fees as unnecessary.

“Young people hate the idea of… eight pages of fees that you don’t find out about until you are already in the system,” he said. “At Wealthfront we have literally two price points. Under $10,000 is free with no commissions at all, and over $10,000 we charge one quarter of one per cent. It’s not like the millionaires are getting a better deal.”

Of course, there are things computers still can’t do

Kate Henderson, a spokeswoman for the traditionally-based investment company Vanguard, said people looking to put their money into an automated service should still conduct their due diligence, as they would for any other investment vehicle.

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“You need to do your homework no matter if you’re working with an adviser face to face or a robo-adviser,” she said. “Check credentials and references, look at the financial disclosures. Understand where the fees are coming from. Ask the right questions. How is the advisor compensated?”

However, Nash pointed out the companies like Wealthfront should appeal to people who don’t even know where to start when it comes to researching investments. He said people with the financial acumen to wade through all the complexities of modern investments might find his company’s services redundant.

He added that even the most esteemed Wall Street financial giants came out of the 2008 financial crash with egg on their faces.

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Source: http://www.redorbit.com/news/technology/1113345118/bye-bye-people-robo-investing-becoming-increasingly-popular-030315/