
The State of Robo Advisors – Personal Financial Advisors as a Service - vimarshk
https://medium.com/@vimarshk/the-state-of-robo-advisors-personal-financial-advisor-as-a-service-70fb0519642b
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harmegido
I think there are legitimate hurdles robo-advisors need to climb to convince
potential clients to join. Investing is something that should be done with a
fairly long time-frame (10+ years). Of the companies listed here, how many do
you think will exist in 10 years?

The concern isn't that your money will disappear once the company folds
(though maybe this is a fear some have), but rather that it will create a
large burden once it happens, and possibly have tax implications? I doubt we
will see many of these companies convince older folks to trust them with their
money, at least not for a little while.

I say this with the experience of having some money in WiseBanyan, which
appears to be superior on cost to most of the others out there, except that it
looks like it's losing the publicity/marketing/AUM race, so my fear is that it
will fold. It's keeping me from putting more money there.

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jsprogrammer
I think that the whole space may suffer from the, "If they are so good at
making money from money, why do they need to solicit my money? Why don't they
take their own money and use their own strategies to make their own profits?"
problem.

Maybe I am wrong. Is there a 0-cost Robo Advisor (that actually produces real
returns) in existence?

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AjithAntony
> If they are so good at making money from money, why do they need to solicit
> my money?

You mean the VC's? Because the strategies of these conservative robo advisors
is far from the kind of expected return that a VC wants.

You mean the customers? Why pay anybody to manage a stock portfolio? Each one
has a slightly different value proposition, but in the end, it is just easier.
It is valuable to some people. Just like paying anybody else for a service.

> Is there a 0-cost Robo Advisor

Wisebanyan is going with a "free" service and upselling extras. I don't forsee
it going well unless their costs are actually low. I do have an account with
them and 4 other robos.

> (that actually produces real returns) in existence?

You mean for the VCs? dunno.

For customers? Of course. Most are just index funds. If the market is up then
they all had real returns. Did you mean real returns in excess of some
alternative? Depends on the alternative.

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jsprogrammer
If a Robo Advisor is just a front-end to SPX...is it really an Advisor? If I
have to pay money for such advice, then it's just a middle man working for
transaction fees.

>Did you mean real returns in excess of some alternative?

I would define real returns as that quality on the "return" which exceeds
those qualities of the original investment. It's not just a matter of
comparing the absolute dollar amount (assuming $ denominated measurement) that
was given to the amount that was received. The realized return must have some
new quality about it; probably, this is typically talked about as "purchasing
power", or similar.

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Jemaclus
What I don't see here is what I'm most interested in: how effective are robo-
advisors? What percentage of the time do they beat the market, if ever? Am I
better off simply investing in S&P 500 or a Vanguard target fund? Or does
FutureAdvisor or Betterment or Wealthfront provide some unseen benefit?

FWIW, I've seen stats that suggest that 85% of advisors (robo or otherwise)
perform _below_ the S&P 500, which frankly is not a great sign for that
industry.

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vimarshk
Am I better off simply investing in S&P 500 or a Vanguard target fund? Or does
FutureAdvisor or Betterment or Wealthfront provide some unseen benefit? >> The
space is relatively not mature yet to be able to gauge effectiveness. Time
will tell. However, what we observed was some robo advisors are creative in a
way to prevent losses. Also, another observation was who is in their team.
Sometimes we see prominent brokers/experts on the team which may/may not
translate to a better return, while there are clearly some who do not have
stock investment experts which translates to weaker investment strategies.

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groby_b
... which says nothing about the state of Robo Advisors, and a lot of the
state of the business of running a Robo Advisor.

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jsprogrammer
The purpose of Robo Advisors is to generate fees for the businesses running
them. Article seems on point.

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vimarshk
The target audience for the Robo Advisors are people approximately between 25
and 35 who have large amounts of money to invest but no time. The issue is
there are not very many of them. Hence, they have to get huge distribution to
get more AUM. The AUM growth translates to more fees. Looking at their margins
they have a long way to go to hit considerable revenue. This also highlights
the fact that these companies have massive valuations fueled by investments
from VCs with exits very far away in the future.

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jsprogrammer
It seems more like the target audience of Robo Advisors is VCs looking for
passive income on trivial transactions.

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darknight83
This is an interesting area for startups. Are there any regulations to become
a robo advisor

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vimarshk
This area is heavily regulated. Even though these companies are not public
they have to submit their AUM and other operational details to SEC.

