NASHVILLE — Never turn your back on the ocean, even metaphorically. At the NAPA 401(k) Summit this week, advisors are here to see what’s brewing in the choppy financial industry seas. One wave to watch is that of the robo-advisor trend.
Robo-advising is not as futuristic-made-for-movies as it sounds. It’s simply an online software advisory solution that uses algorithms to pick investments to meet a client’s goals.
Still, this technology is making a splash in the financial industry.
A recent study from Scottrade reveals that more than nine in 10 RIAs believe robo-advisors will become more prevalent in the financial industry over the next two years.
Forty percent of RIAs say they see robo-advisors as complementary to their business, while 23 percent say they view them as competition. No matter whether they view it as threat or opportunity, 28 percent of RIAs say they currently offer algorithmic-based investment advice and 19 percent plan to offer it in the coming year. Interestingly, the study says that RIAs managing $500 million or more in assets are more likely to offer these services than those with less than $500 million in assets.
What do consumers think of it? They’re interested, according to a study from consulting firm AT Kearney. The firm says in the next three to five years robo-advisory services move into the mainstream among U.S. consumers.
Whether the investments selected by the algorithm software are all from one firm’s stable or are the best possible chosen from a variety of offerings, depends on the robo-advisory solution. And whether clients adopt it quickly or lag somewhat will also depend on demographics and tolerance for risk.