One of the hottest trends in the world of fintech today is robo-advisers. These don’t involve humanoid robots, but sophisticated algorithms that automatically invest, allocate and rebalance funds. Offering low fees, these services have collectively attracted some $50 billion in investments, according to Aite Group. Leaders of some of the biggest and fastest-growing robo-advisers from around the world shared their insights on this growing market segment in a panel discussion at Rakuten FinTech Conference 2016 in Tokyo this month.
“Individuals who want to maximize their wealth want their financial services to work as well as their other favorite technologies,” said Eli Broverman, co-founder and president of New York-based Betterment, launched in 2010 and one of the largest robo-adviser startups out there. “We use technology to automate everything for our customers so we can provide the highest quality financial advice and portfolio management at very low cost.”
Robo-advisers are especially attractive to investors who don’t want to spend lots of time trying to choose a winning stock or fund, while putting money into low-fee index funds. The concept is catching on. Broverman recalled that when he participated in last year’s Rakuten Financial Conference, Betterment had about 50,000 customers and was managing a little over $1 billion in assets. Those figures have since exploded to over 200,000 customers and nearly $6 billion in assets.
Acorns, an app-based robo-adviser based in California, was set up in 2012 and already has over 1 million customers. It’s based on a particularly compelling strategy for those who want automated investing – the app is linked to users’ credit cards and invests the “spare change” generated after rounding up their purchases to the nearest dollar.
“To appeal to millennials who don’t have much money, we attach the investing process to the spending process,” said Walter Cruttenden, chairman and co-founder of Acorns. They are able to invest in funds like Vanguard and Blackstone ETFs as part of portfolios designed by Dr. Harry Markowitz, who won the Nobel Prize for modern portfolio theory, he continued.
Robo-advisers are also attracting attention in Europe. One is UK-based Nutmeg, which allows users to start investing with as little as £500, with fees of 0.3% to 0.95%.
“What’s different about Nutmeg is that we benchmark our performance against high net worth asset managers,” said Shaun Port, CIO of Nutmeg, which began in 2012.
So how about Japan?
Ryushi Watanabe of Thomson Reuters, who moderated the panel, explained that the circumstances surrounding securities investments in Japan is a little different to the West.
“The Japanese have traditionally been extremely risk averse when it comes to wealth management,” he said. “More than 50% of all personal financial assets in Japan are locked up in savings deposits.”
Nevertheless, he continued, expectations are high that robo-adviser services might be the key to encouraging Japanese consumers to shift some of their money from banks to stocks. This year alone several new robo-adviser services have launched in Japan. In addition to startups such as Theo and WealthNavi, Rakuten Securities has also entered the fray, starting Raku Wrap in July.
Nobuhiko Masaki of Rakuten Securities reported that his company’s new product has had a very promising start.
“We launched Raku Wrap on July 4 and by the beginning of September we had more than 5,000 users. A large portion of those users are in their 30s and 40s, which is just as we had hoped,” he said, noting that customers can start investing from as little as ¥100,000 and that fees are kept under 1 percent.
He also had some evidence to suggest that Raku Wrap is succeeding in attracting first-time investors – and thus perhaps helping to chip away at Japan’s famously large pool of personal savings.
“If you look at Raku Wrap users, 91% of them are already Rakuten members. These really are regular consumers, but it seems they are willing to try it out,” he said.