With technology increasingly seeping into every aspect of our day-to-day lives, it should come as no surprise that it is also playing an increasingly greater role in how we experience financial services. More and more, people desire to consume information in a different way—namely, through technology and one another, regardless of whether there is a person-based service interaction. And this trend will only grow as millennials continue to reach adulthood and enter the workforce and as boomers continue to increase their appetite for, and aptitude with, technology.
Today’s youth are often referred to as “digital natives.” This generation has never been without smartphones or “touch-based” screen experiences. They have been raised communicating via text messaging and completing transactions through apps. As a result, they have a comfort level with technology not experienced by previous generations. In addition, as boomers begin to enter retirement, they are using their spare time boning up their working knowledge of technical devices. So what does this mean for personal financial services?
As is the case with many other industries, the financial sector must continue to evolve in order to engage not only millennials, but also any consumer who would rather interact with a mobile device rather than go and speak to a person regarding their finances. Enter the robo-advisor, one of many technically powered innovations to come.
According to Investopedia, a robo-advisor “is an online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial planners.” Such services have been growing in popularity throughout the investment sector of the financial industry.
TD Ameritrade Investment Management, for example, recently introduced Essential Portfolios, which, through a series of questions to understand personal investing goals and risk tolerance, enables users to receive a recommendation for a specific managed portfolio that can fit their financial needs for a low cost—all within about 15 minutes. The portfolio is monitored and automatically rebalanced by TD Ameritrade Investment Management, and the investor has on-the-go access through any device to monitor their portfolio and adjust their financial goals in the app as life presents them with changes.
While the idea of using an automated program to manage their investment portfolio may seem esoteric for certain investors, for countless others it can be an ideal option for a number of reasons. Typically, robo-advisors require a smaller initial investment and have lower fees than a professional financial advisor. It’s important that investors keep in mind, however, that not everything is manageable through such programs, so for those with more complex wealth management needs, having a trusted financial advisor or tax professional is still a path worth considering.
According to TD Ameritrade’s Investor Pulse Survey,* only 3 percent of respondents reported investing 76 percent or more of their assets via robo-advisor or another automated online investment service platform. This means that the vast majority of investors are still using more traditional investment methods either entirely or in conjunction with robo-advisors. As investors grow, so do their needs, and companies are evolving to meet those ever-changing demands.
Part of the big picture—a hypothetical case study
When Melissa was eight, her school offered a program that enabled students to open a savings account with a local credit union. Every week, the student-run “branch” was open, and she was able to deposit a portion of her allowance. She participated every year throughout elementary school. When she graduated fifth grade, she was amazed at how much she had been able to save. This experience taught Melissa the importance of saving.
When Melissa was in high school, she opened her first checking account online. Her paychecks from her first job were automatically deposited into her account, and she used her debit card to withdraw money. Throughout college, Melissa continued to bank online. She managed her budget using a smartphone app and was able to finance much of her college education by drawing on a 529 plan her parents and grandparents had contributed to throughout her youth.
After graduation, she accepted her first full-time position and officially began her career. During her onboarding, she learned that her new employer offered a 401(k) plan. She met with the plan administrator, which was her first experience with a professional financial advisor. For several years after that, she let her 401(k) run on autopilot, and over time, it grew.
In the meantime, she opened an account and signed up for a robo-advisor by answering a few simple questions online and considered it a place to invest extra money for her long-term goals—starting her own business, paying off that last student loan, purchasing a home, and traveling to Europe. By the time she realized that first dream and launched her own small business, she thought that meeting in person regularly with a financial advisor would be wise, especially to keep her business goals on track.
Overall, it’s an exciting time for investors with an ever-expanding arsenal of tools to help them reach their investing goals. And there’s nothing to say that an investor’s strategy can’t evolve over time just as the industry itself continues to evolve.
*TD Ameritrade Investor Sentiment Survey of 1,000 investors, October 2016. A 13-minute survey was fielded on behalf of TD Ameritrade from 10/10/16 through 10/14/16. It was a national online survey of 1,000 investors who have at least $10,000 in assets across all brokerage or investment accounts and have bought or sold securities at least once in the past 12 months. Margin of error +/- 3.1 percent.
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