The finance industry has been fixated on the emerging robo-advisor trend. The concept sounds easy, right? You simply give your money to a robot and it takes care of the rest. Algorithms created by math geniuses do all the trading, and you reap the rewards of low fees and decent management. Then the reality check.
Wouldn’t you like to know what’s going on with your money? What if your algorithm is losing your money? Who are you going to talk to about it?
Robot-advisory firm Betterment has already been forced to add humans to the mix. Rather than robo-advice, it’s offering “hybrid” advice. It turns out, investors would still like the option of talking to an advisor. But it won’t come cheap. Human interaction will cost an extra 0.4% per year. But don’t expect to be able to call anyone, the service only covers advice via text message. Anne Tergesen reports at the Wall Street Journal:
The moves will take the robo-advice pioneer further into so-called hybrid advice, which pairs computerized financial advice with human help. After helping to put the robo-advisory industry on the map by providing automated portfolios of low-cost exchange-traded funds mainly to younger clients, Betterment introduced human help in January.
At the time, Chief Executive Jon Stein said the new approach would allow the firm to expand at a faster rate. So far this year, though, the firm’s growth rate has slowed. In 2016, the company’s assets under management more than doubled, from $3.2 billion to $7 billion.
High fees can kill investor returns, but you shouldn’t base your investment management decisions solely on finding the lowest price. You should look for a balanced approach with a fee-based investment advisory looking to minimize your costs while protecting your wealth.