Automated Investment Services

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Otherwise known as robo investors, automated investment services are services guided nearly 100 percent by algorithms and mathematical formulas. The industry boomed and really developed out of the market collapse in 2008/09. At the time smaller investors became understandably spooked, pulled their investments out of the market and literally sat on the cash. The feeling that stocks were simply not that safe was rampant, and even though the big players knew a turnaround was in play (it always is), the smaller fish couldn’t stomach the risk.

During this time interest rates plummeted to zero which resulted in an atmosphere that was not helping individual investors grow their wealth. A couple new companies, Betterment and Wealthfront to be exact, entered the sphere and via algorithms encouraged investors to use their platforms which naturally diversified their portfolios across market sectors and asset classes. An all-digital platform where there is not your traditional investment advisor providing financial advice was comforting to some. Robo advisors naturally targeted younger investors and employed fancy forecasts and encouragement surrounding wealth building that lured this generation in and made investing much more palatable.

A June 2019 report by The Boston Consulting company placed automated investment services front and center. The famed consulting company recommended a balanced mix of digital and human engagement to capture underserved, but relatively affluent investors who are seeking to augment their participation but would like a range of models and services to accomplish this. The biggest players in the automated investment scene appear to have read this report and are now focusing their efforts on this segment, known as the “mass affluent,” defined as someone with $100,000 or more in investable assets. TD Ameritrade, Charles Schwab and Fidelity are the biggies in play, and have developed some very intuitive platforms that feature all the bells and whistles of a typical robo investor platform, but with people behind it when that human touch is needed.

In addition to more human intervention, many automated services also provide subscription-based pricing as opposed to charging a fee based on the amount in assets that are being managed. Charles Schwab for example introduced a service called Intelligent Portfolios Premium which gives the user access to a financial planner for a $30 monthly fee. New clients will need a minimum of $25,000 and then pay an initial planning fee of $300. From there a mix of human and digital advice is available across a range of accounts (individual stocks, 401Ks, etc). Yet, as with any sector, while many are moving in this direction, there are some players going in another direction. One of those is Ally Invest. This company launched a new suite of portfolios that features something called a “cash buffer.” This is defined at 30% of total assets and this amount will be free of a management fee. Strategies like this are designed to reduce anxiety with new investors and retain them over the long-term.

Regardless of what platform or advice you seek, automated investment services are a great way to have your investments streamlined in one place. But the human component is important, so make sure you mix a person with a beating heart in every now and again.