More firms offer robo investing for retirement accounts

Tim Grant
Pittsburgh Post-Gazette
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More financial services firms are betting on higher demand for “robo” financial advice services, which allow clients to use a computer rather than flesh-and-blood advisers to help them make decisions on investing their money.

But a recent study found most baby boomers still prefer the human touch when it comes to managing their retirement assets.

A survey by GfK, which is headquartered in Nuremberg, Germany, but has operations in more than 100 countries, including the U.S., found less than 5 percent of people age 50 or older said they would embrace an all-digital service approach from their investment firms. The level of trust in robo advisers was highest among the 25-34 age group and lowest among those age 65 and above.

To address the concerns that some middle-aged and older investors have with computer-based investing, several companies have launched their own hybrid versions of robo investing that bridges the gap between a human connection and tech platform.

“We are robo for boomers,” said Scott Puritz, managing director for Rebalance IRA in Bethesda, Maryland. “Rebalance IRA has always combined the efficiency of robo investing with the human dimension of a traditional advisory company. For boomers in their 40s and 60s, the pure computer experience is not satisfactory.

“Our typical client is in their 40s and 60s and they want a live human, a seasoned experienced financial adviser to guide them through the complexity of their retirement choices and needs,” he said. “Typically, they have more assets — a home, mortgage and often more than one retirement account. They are frequently married with kids and they need more guidance.”

Rebalance IRA was among the first companies to offer robo investing for retirement accounts when it started four years ago. Today, the company manages about $400 million in client funds.

Other large companies that offer robo investing along with human advisers include Vanguard, Schwab, BlackRock and Ellevest, which is the first to offer the robo service just for women.

The rise of robo advice platforms over the past year has been significant, according to the financial services industry trade publication InvestmentNews.

Assets in the robo channel have increased 61 percent to $150 billion during the 12-month period ending March 31, according to researchers at the New York-based publication. Based on their study, they expect the rate of growth for robo advising to maintain, if not accelerate, in the near term as assets continue to flow to this model, particularly as more large industry players get involved in this market.

Robo-advisers automatically invest client money in diversified strategies, using boundaries set based on an individual’s goals and risk tolerance. Mutual funds and exchange traded funds are chosen based on what the algorithms and calculators decide is the best risk-reward profile for that client.

It’s seen as a way to help people who haven’t quite become wealthy, but still have money to invest and want help doing it. One of the driving forces behind the rise of robo investing is the lower fees charged for the service and lower account minimums compared to traditional advisers. Some robo investing services have minimums as low as $5,000.

Clients with less than $500,000 to invest are not all that profitable for traditional financial advisers. Often the threshold for brick-and-mortar firms run from $500,000 to $1 million or $5 million to provide one-on-one financial advice.

“A typical wealth manager charges 1 percent and has a minimum account requirement of $1 million, which yields them $10,000 a year in fees,” Puritz said. “By contrast Rebalance IRA has an account minimum of $100,000 and charges 0.5 percent annually for a minimum fee of $500.

“We deal with middle age and middle-to upper-middle class Americans,” he said. “Our floor is $500 a year, not $10,000.”

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