Financial advisors have been around for decades, helping people navigate their financial futures. As of now, there are around 218,100 personal financial advisors in the U.S, according to the Bureau of Labor Statistics. This means that there are 9.70 financial advisors for every 10,000 adults ages 25 and older. Soon, this number of financial advisors could drop significantly as “robo-advisors” become a reality. Robo-advisors may sound fancy, even something out of Star Wars, but in reality, they’re just algorithms created by companies to automatically invest for clients. These algorithms function by taking in data points like age, savings goals, risk comfort, and more and forming an investment portfolio. It is predicted that these so-called “robo-advisors,” may soon manage more than $1 trillion of Americans’ wealth.
Robo-advisors aren’t a new invention, in fact, they’ve been around since 2008. Since then, the frequency of their use and overall popularity has grown, with these algorithms currently managing about $785 billion, according to Backend Benchmarking. To capitalize on this trend more and more firms have worked to build their own models and grow their popularity. Not all sentiment is fully supportive, with financial advisors like Ivory Johnson, founder of Delancey Wealth Management in Washington, D.C., saying robo-advisors are like “If you play golf, it’s just a different golf club. “It’s suitable for some people and not for others”. Statistically it appears that robo-advisors attract a younger demographic, including millennials and Generation Z, most of whom grew up as digital natives. What do you think about robo-advisors? And would you use one?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.