Being a Robo-advisor Client for a Year: The Great, the Good, the Ugly

January 15, 2016 Teddy Griffin

Robo Advisor Image

Okay, we get it. Robo-advisory platforms, otherwise known as “robos,” have taken the financial services industry by storm. People cannot talk enough about them. If anything is certain, robos have attracted tech-savvy Millennials with the goal of holding on to them for a lifetime.

As a relatively tech-savvy Millennial who worked at Morningstar and now a technology start-up company building solutions for financial institutions, there is nothing more attractive to me than low-cost, strategic investing for the long-term, which as it turns out, these folks do pretty well.

And while other traditional advisory platforms race to enhance their offerings by building new proprietary software and/or simply doing what big firms do best, making acquisitions, it seems like these new technologies are putting up a good fight. I, in particular, became a believer almost one year ago today.

Through my experience, here are a few areas where I think robos have succeeded and failed:

The Great: Easy-to-use portfolios 

In minutes, investors can get a well-constructed portfolio based on their goals, time horizon and risk tolerance that is cheap, tax-efficient, and rebalanced regularly. Unless you are an active trader and enjoy managing your own portfolio, robo-portfolios are great for individuals that want to invest but aren’t able to research and make their own decisions for any number of reasons.

It’s also extremely easy to link your bank account and set-up a portfolio with auto-deposit, something that can be difficult at bigger firms but a given that we’ve all come to expect with any banking technology nowadays.

The Good: Customer engagement

Over the last 12 months, I’ve received countless email updates about upcoming deposits and rebalances, as well as monthly newsletters and mobile alerts about new features. However, robos are still presented with a common challenge among all firms - templated and impersonal communication.

Luckily, there is hope for investors to receive better insight. I work at a firm that is attempting to help solve this problem and selfishly, I would love to see a partnership between the two technologies.  

The Ugly: Holistic advice

Okay, “ugly” might be a little harsh, but I think the robo-advisor has presented itself with an obstacle here. The tool I use allows multiple accounts to be set up. For example, an IRA, a “Build Wealth” and/or “Safety Net” can be constructed with different investing strategies based on one’s time horizon, risk tolerance and, ultimately, financial goals. Where my robo fails is advising on how to think about these individual strategies as part of my whole financial well being. 

One could argue that the system should take into consideration how my other accounts are allocated, my overall savings rate and goal, even my occupation (for example start-ups tend to be riskier from a future earnings power perspective than a government job). This is how a traditional advisor manages investing for their clients, and I imagine the robots are quickly trying to solve this problem as I type.

Can the Innovation Keep Pace?

Over the last year, my experience with a robo-advisor has been almost everything I wanted. On the other hand, it is clear there are improvements to be made as robos mature. Additionally, in order to attract older clientele, guide novice investors and ultimately retain both groups, they’ll need to discover more effective ways to take assets from their competitors in the traditional advisory space.

After all, a Cerulli Associates study in September said robo-advisors need to grow more than 50% a year for each of the next six years just to have enough assets to stay relevant in the industry1.

Clearly, they are off to a good start but competition is coming quick. Robos need to do everything they can to retain current clients and sign new ones. Sure, I came for the easy-to-use portfolio but what will make me stay is their ability to provide information I care about and more holistic advice.


Quill for Wealth Management 

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