In 2010, when the pioneering digital investment company Betterment launched, few outside the fringes of fintech had heard the term “robo-adviser.” In 2022, data firm Statista reports, these fully automated financial advisers managed more than $2.4 trillion in invested assets worldwide,and the industry is growing by 33 percent a year.
That’s still a fraction of total assets under management worldwide, which Statista projects will top $120 trillion this year. But the rapid growth of robo-advisers is a testament to how they have transformed the investment landscape by providing a low-cost, low-maintenance portfolio-building tool for people across the economic spectrum.
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Make that the generational spectrum, too: Along with standard brokerage accounts, robo-advisers offer tax-advantageous retirement saving options like traditional and Roth IRAs, and tools like risk assessments and automated portfolio rebalancing that empower people to start investing in their future.
“One key benefit of using a robo-adviser for retirement savings is that the fees are much lower than a traditional adviser,” says Nick Holeman, director of financial planning at Betterment. “This is especially important for retirement savings, which oftentimes are the largest accounts an investor has.”
What is a robo-adviser?
Robo-advisers generate and manage your portfolio digitally, with minimal human involvement, using algorithms and, in some cases,artificial intelligence to find investments that match your risk tolerance and meet your savings goals over a particular time frame. These automated managers usually charge lower fees than traditional financial advisers and require less upfront investment, potentially making them more viable for people of modest means.
Since their advent with stand-alone providers like Betterment, Wealthfront and Acorns, robo-advisers have been widely adopted by Wall Street, with major banks and brokerage firms such as Fidelity, Vanguard, Charles Schwab and Wells Fargo offering their own automated investment platforms. Today, there are more than 100 robo-advisers operating, according to Charles Schwab.
“They attempt to fill a need for the masses to get financial advice in a cost-efficient manner,” says Robert Johnson, a chartered financial analyst and the CEO of Economic Index Associates in New York City.
