Digital investing advice has evolved in the past several years from digital-only to a hybrid that includes advice from human beings — and assets on these platforms have grown substantially. In 2018, experts expect that trend to continue, but with a face-lift for the traditional and hybrid “robo advisers.”
It’s estimated that robo advisers, which are online automated investment platforms, managed $166 billion in 2017, and by 2018, that number will be more than $435 billion, according to research firm Aite Group. Some of the well-known leaders in the digital advice realm include Betterment, Personal Capital and Wealthfront, though many more entrants have joined since those three started in the late 2000s — including most of the large investment firms, like Fidelity and Vanguard.
See: Robo advisers, digital advice and the future of the advisory business
Technology changes quickly, and that will be no different for digital advice — here’s what experts expect to see next year:
Not all robos will be free
Some robo advisers and other digital advice providers are free, such as Charles Schwab’s SCHW, -1.29% robo adviser, and now M1 Finance, which recently announced it would no longer charge a fee for its managed assets. When M1 Finance made the announcement earlier this year, its chief executive officer, Brian Barnes, said the “future of finance is free.” Investing accounts are starting to mirror savings and checking accounts in the sense that they’re so easily accessible and free, he said, and M1 is able to earn revenue through lending out its assets just like a bank does.
Of course, not all robos will be free in the next year or five years, said Sean McDermott, a senior analyst at research and consulting firm Corporate Insight. Some companies, like Schwab, may be big enough to support this model, but most aren’t. Schwab is also able to offer a free investing platform because its platform requires clients to have a small percentage held in cash, which is then swept into its bank, which earns revenue for the company.
Digital advice is typically less expensive than working with a financial adviser, though it may depend on the company and packages.
There will be more product lines and assets to offer
Since its founding in 2008, Betterment has gone from just a direct-to-consumer service to one that has a branch for financial advisers to use with their clients as well as another branch for its 401(k) clients. Other companies have followed a similar strategy, offering a platform for financial advisers to use, working with banks alongside their checking and savings accounts, and adding financial advisers to their services so that their digital advice clients can speak to a certified professional. In 2018, that will continue, McDermott said.
While a lot of digital advice providers have added a human element to their services, some companies may never do so. Wealthfront has said a few times in the past working with human advisers is unnecessary, because they are “disconnected” and “impersonal.” Financial advisers, and many robo adviser platforms now, argue having a “human touch” is important, since money is so personal.
Also, instead of providing a core portfolio with asset allocations based on time horizon for a goal or age, these firms will have other offerings, such as smart beta investing and tailored investments like socially responsible investments. Morgan Stanley MS, -0.34% unveiled its robo adviser earlier this year with three buckets for investments, one of which has a thematic tilt.
Video will be prevalent
Calculators are popular among digital advice platforms, because they allow consumers to assess where they stand financially or how much they can invest, but videos created by financial institutions that explain confusing terms and investment strategies will become more prevalent as the younger generation ages — 43% of people 21 to 39 years old are watching videos about finance, compared with 29% of midcareer adults 40 to 52 years old, said Laura Varas, founder of research firm Hearts & Wallets. Videos are engaging and can show a professional breaking down complex financial information.
Also see: Where do traditional advisers fit in a world dominated by robo advisers?
More interactive and creative apps
Along the lines of video, there will be more interactivity in digital advice, Varas said. Investing doesn’t have to be boring, she said, but traditional firms make it so with thick packets of paper. Some companies that work with financial institutions, such as PIEtech, are offering more unique faces to digital advice, with engaging images, vibrant color and creative thinking. As a result, digital advice will focus more on what the consumer wants and gamelike experiences.
Of course, there is a difference between enhancing engagement with clients or being a gimmick, and some new entrants may fall under the latter category, said Jay Shah, chief executive officer of Personal Capital. There may be more flashy platforms as the marketplace for digital advice continues to expand.
Greater transparency
Transparency has become incredibly important in recent years, especially when the Obama administration pushed for the fiduciary rule, which states advisers must act in their clients’ best interests and disclose any conflicts. Though the fiduciary rule, which was passed under the Obama administration, has recently been halted so that the Trump administration can review it further, it has had a rippling effect on the industry, invoking more questions of advisers about their businesses and how they are paid or what services they provide.
Consumers will hold all financial institutions — online or in person — more accountable, Shah said, with questions like “what are you doing for me?” and “how do I pay you?” versus “how do you make money?” The last two aren’t mutually exclusive.