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The inexorable advance of robo- advisors

08/04/2016 12:08
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In the last five years robo-advisors have made great inroads in the industry. In spite of some initial suspicion, investors have come to trust them as an efficient wealth management service.

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Traditional industry is being challenged by the demands of investment in the digital age, and robo-advisors have attracted modern investors because of their capacity to manage modest portfolios with figures way below the astronomical ones of the past. Robots are cheaper than human advisors and manage smaller sums of money, although all is not yet lost for the flesh-and- blood variety. After all, humans have an added value which—to date, at least—financial robots can't match: a direct, personalized manner with customers.

In spite of the advantages of dealing with humans, there is no doubt that robo- advisors are here to stay. According to Morgan Stanley, these automated advisors are still at the takeoff stage but "have a long runway for growth".

As proof of this, the pioneer in automated advice, Betterment, has surpassed $5 billion in assets under management by robo-advisors. Experts believe that a hybrid system—the systematization of robo-advisors  and the personalization offered by human advisors—will make it possible to customize services and offer customers the best deal.

Three companies in particular are promoting robo-advisors:

Betterment offers the most complete services for people thinking about retirement. Users enter all their savings and investment accounts into an engine that calculates their annual spending during retirement. It also works out how much they need to save each month.

Vanguard is one of the largest investment management companies in the world, specialized in index-linked funds and ETF (exchange-traded funds). Its hybrid system automates customer data but also uses human advisors to guarantee safety, attracting investors who are comfortable with technology but still want to be able to talk with a real person.  

Spain's automated investment manager Indexa Capital focuses on the passive management of six index funds. With a minimum investment of 10,000 euros, the algorithm calculates and assigns portfolios according to the user's risk aversion, objectives, age and income. It invests in indexed funds which replicate both fixed-income and equity stock exchange indices or mutual funds. Indexa builds portfolios with unlisted investment funds, which are cheaper than active management funds.

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