Robots are getting better at advising people about how to save money, a role that was once the exclusive domain of relatively well-paid professionals. The CEO of Vanguard, one of the world’s biggest asset managers, reportedly said automated fund selection is now so easy that it could become the default setting for many clients. Morgan Stanley’s CEO has said changes in technology are what he worries about when he gets out of bed in the morning.
Wealthfront is one of the companies that’s trying to upend the traditional finance industry. The money manager started a service today for saving for a home downpayment, which is part of its plan to automate everything for its clients. The company uses third-party data to project what a customer can likely afford and—in partnership with Redfin, an online realtor—can show users the types of houses within reach in a particular neighborhood. Its algorithms will also show customers how buying a home will affect the rest of their financial goals, like retirement.
The company introduced the service after noticing that the main reason customers take money from their accounts is for a downpayment, according to Kate Wauck, a Wealthfront spokesperson. The firm caters to millennials and has ambitions to be the go-to source of saving and investing services for that generation.
The giants of the money management industry have taken notice: BlackRock has invested in robo-advisory services in the US and Europe, while Vanguard customers have been swapping into its automated service. Vanguard CEO Tim Buckley said recently that as fund fees plunge, advisors themselves are often the single biggest expense for customers, according to WealthManagement.com. He sees no going back from automated money management.
Morgan Stanley CEO James Gorman noted in a Bloomberg Television interview that wealth management has been going digital for a long time—companies like Charles Schwab and E-trade have been at it for more than two decades, after all. While the bank is betting there will still be a place for humans in the business, Morgan Stanley also rolled out it own online investing platform last year. The bank oversees more than $2 trillion in investment assets and employs 16,000 financial advisers. (For now.)
Algorithms still have work to do when it comes to earning trust and becoming the default decision-maker for financial decisions, especially for people with more sophisticated needs. But it’s clear human advisors are going to have to offer their clients more than just the standard recommendation of a 60/40 portfolio of stocks and bonds.
Vanguard’s Buckley says human asset managers should focus on things like behavioral coaching, to help keep customers from panicking in a downturn. They can also provide custom planning for estates and long-term healthcare. Overall, the CEO says financial advisors are going to have to get to know their clients even better by learning all about their children, interests, and businesses. In other words, by becoming as human as possible, advisors give themselves the best chance at providing something the algorithms don’t.