The Future of Robo-Advice

Automated solutions won’t render a profession obsolete.

Nelly Poon 22.08.2016
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Joe Mansueto, CEO and founder of Morningstar, Inc. has written an article “The Future of Robo-Advice” for the August/September Morningstar Magazine. A few points Joe made in the article:


1) Robo-advisors are good for the industry and here to stay. They’ve put people into sensible portfolios that are low-cost and diversified with regular rebalancing. They should produce reasonable, indexlike returns over time.

2) Pure robo-advisors will not replace financial advisors any time soon. No sales commission mutual funds were introduced in the 1980s. Common wisdom was that their cost advantage would enable them to take over the fund industry. But investors voted with their feet and sought to work with financial advisors.

3) Robo-solutions work well for those early in their careers when their financial affairs are simpler. As people age, their financial lives inevitably become more complex – there may be a divorce, a special-needs child, care of elderly parents, insurance needs…. At that point, people highly value working with a financial advisor who can put together an appropriate financial plan. It’s hard for a computer algorithm to take into account the multitude of possible individual situations and create a plan in a way that engenders trust.

4) Startup robo-advisors may face serious economic headwinds in the coming years. They’ll need to evolve their offering to incorporate more financial planning capabilities and find creative ways to lower client acquisition cost.


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Nelly Poon  Nelly Poon is an editor with Morningstar.

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