The digital technology era has fostered the rise of ‘robo-advisors’, working both in the online ‘pure player’ space and in the more traditional investment fund sector.

Investment Services: customised automated online approach steadily gaining in popularity

While wealth management advisors may still have a bright future in front of them, we have in recent years seen an increasing number of web-based initiatives emerging to rival the traditional players in the investment services sector. These ‘robo-advisors’ offer fully automated solutions for managing a share portfolio online, mainly targeting private individuals. All the client has to do is indicate his/her degree of risk appetite and basic investment preferences and algorithms then come into play, managing the investments and balancing the portfolio. Listed by the New York Times as a potential unicorn, New York-based Betterment is one of the best-known startups in this sector. CEO Jon Stein describes the service as “a mix of sophisticated financial technology and behavioural science.

The progress of a potential unicorn

“We find that we help our customers get a better investment return by limiting some behaviour,” explained Stein, in an interview with Forbes magazine last year. For example Betterment avoids following market trends too closely and seeks to ensure that its clients’ portfolios are well-balanced. The recipe appears to work; the company raised $60 million worth of capital earlier this year. The firm currently has 120,000 clients and manages $2.5 billion worth of investments.  In addition, Betterment has launched a range of specialised services, including its Tax Impact Preview – which indicates in real time the fiscal impact of an intended transaction; RetireGuide – a customised plan for preparing your retirement; and Betterment Institutional – aimed at financial and investment professionals rather than the individual investor, which currently serves over one hundred advisors from various investment segments.

Competition hotting up in the market

It would appear that the popularity of such online services is unlikely to wane. A recent research report from management consulting firm A.T. Kearney predicts that the proportion of invested wealth managed by robo-advisors is set to grow from 0.5% today to reach 5.6% by 2020. In this market, Betterment’s most serious competitor is without doubt Palo Alto, California-based Wealthfront. This startup, on which L’Atelier reported last November, boasts over 35,000 clients and a total asset portfolio value similar to that of Betterment. The situation hotted up between the two competitors in the early summer when Wealthfront CEO Adam Nash criticised Betterment’s business model. Robo-advisors offering a similar approach include Jemstep, Hedgeables, FutureAdvisor, Upside, SigFig and Personal Capital. Among the niche firms looking to enter the market is Blooom, which specialises in drawing up retirement plans. Meanwhile traditional players that wish to avoid getting left behind by the online trend have been busy coming up with a response. Major investment fund Vanguard has set up its own robo-advisor service, while Californian securities brokerage and investment banking specialist Charles Swab & Co has introduced its ‘Schwab Intelligent Portfolios’ service.


By Guillaume Renouard