Since launching more than a decade ago, robo-advisors – online investment services that provide financial advice based on algorithms – have grown into an industry that managed $ 460 billion in 2020.
That is an increase of 30% compared to 2019.
Some analysts believe that robo-consulting will become a $ 1.2 trillion industry by 2024.
“Investors have historically had two ways to manage their investments. They could do it themselves through an online broker or work with a financial advisor,” said Brian Concannon, head of digital advisor at Vanguard.
“Now, with the advent of robo-advisors, there is a third option which is to combine the benefits of professional money management and advice with the convenience of an all-digital application,” he said.
The sudden rise of robo-advisors was made possible by the massive interest and support from Millennials and Gen Z. According to a recent survey by Vanguard, millennials were twice as likely to use a robo-advisor to invest as young baby boomers.
“I believe there are things that technology or algorithms can do better than humans,” said Taylor Crane, a robo-advisor client. “And I have no problem trusting software that does that.”
Skeptics don’t expect robo-advisors to completely replace human advisors in the near future.
“Of course, there will always be a human element missing,” said Jason Snipe, chief investment officer at Odyssey Capital Advisors. “My problem will always be the emotional response. Take a situation like last year when we’re going through Covid-19 and the markets are moving dramatically. … you can’t talk to the technology, can you?”
To counteract this, many robo-advisor companies, including Betterment and Vanguard, offer the option of hybrid services that combine human and digital advice.
“”[Some] Investors who want confirmation from a financial advisor, “Concannon said.” It is incredibly long for these investors to be able to pick up the phone and have a video conference with a financial advisor, discussing their needs and wants, in order to give them the peace of mind they so desperately need. “
Time is on the robo-advisory industry’s side as technology continues to improve and younger generations accumulate more wealth.
“I think a combination of the two is likely the direction we are headed in the future,” said Snipe. “I think the robo-room has room to grow. I think it will obviously modify and change and become even more sophisticated.”