Join us as Dani and Ned delve into the history of Robo-advisors. Robo-advisors probably have one of the shortest histories on record as they have only been here for around 10 years. However, their short history does not take away from how they have revolutionised wealth management.
A common misconception is that Robo-advisors are here to replace humans rather than empower us. Dani points out that Robo-advisors and human advice do not have to be mutually exclusive. Instead, she suggests that we need to start thinking of them as tools to achieve the same goals of discovering one’s financial needs and attaining one’s financial goals.
As Robo-advisors are still relatively new, the term Robo-advisory does not mean much to those not involved in Fintech. Despite this, they have made waves in wealth management and enabled better financial health for many. Ned mentions how the financial crisis revealed that everyone needed a way to empower themselves to manage their finances. Mint took a step towards this with its first personal financial manager in 2006. This paved the way for the first Robo-advisor which was available to be public in 2008 after the financial crash. Since then, the birth of Robo-advisory firms such as Betterment and Wealthfront have pushed the envelope, making financial advice accessible to the masses.
Ned explains that the wealth industry has always been a little lopsided as those with more money are granted greater access to financial advice. In contrast, people with the least money receive the least amount of advice and do not have the resources to make informed investments to grow their capital. Essentially, this is the problem Robo-advisors aim to address and where its story begins. People perceive Robo-advisory as a different way of investment; however, it still operates on the same idea of helping users achieve their financial goals. The key point is that the price of Robo-advisors is lower than what is charged by human advisors, making financial advice more accessible. Robo-advisors have also made it easy to start investing. Ned remembers Wealthsimple’s first tagline of ‘We got you’. Financial advice seems scary and frightening with a huge degree of uncertainty, but this tagline proves otherwise. That has been a massive win for Robo-advisors as they have shown users that investments do not have to be complicated or intimidating.
Despite these improvements, Robo-advisory is still in its early stages, and most wealth managers still do not have a digital presence. While there are a range of methods to manage our wealth today, many of these operations are still conducted manually. Ideally, the consumption of automated investment advice, products, and tools will continue to increase. This will make financial planning available to the masses, allowing them to live better financial lives. In summary, Robo-advisory is still in its early stages, and we are still learning, making mistakes, and working it out.