With the ever-changing technological world we live in, it is no surprise that a brokerage firm will someday introduce robots to do our investing for us. For Charles Schwab clients, this is happening. This is actually not the first time this concept has been introduced to the public though. Two startup “robo-adviser” companies, Betterment of New York and Wealthfront of Palo Alto, California, are already doing this. Charles Schwab is the first established company to provide this service. They can now “provide its service at low cost because the money isn’t touched by human hands” (Zweig, 2015). A traditional broker or investment adviser would meet with their client face-to-face and take some time to get to know you and figure out what you want to do with your money. They would then give you recommendations on what they think you should do with your money and, if you choose to invest with them, they would put your money in individual stocks, bonds, mutual funds, or other securities. The Robo-adviser prompts you to fill out an online questionnaire and run it through a computer program that generates and monitors the portfolio of exchange-traded funds. “These low-cost investment bundles are built to mimic the return of the market index rather than to try beating it” (Zweig, 2015). The new online advisory platform has “no advisory or asset management fees, no commissions and no account fees” (Elson, 2014). It is first being made available to retail consumers. A white-label version for RIAs will be available “shortly thereafter” (Elson, 2014). “The limitation of Robo Advisor is that its service is currently restricted to portfolio management, which basically just includes allocating stocks and investments to various asset classes” (Trefis, 2015). There will most likely be more services offered by the robots with time and growth of the business. This Robo-advisers are very cheap in contrast to the human adviser. Investors will be paying between 0.04% and 0.48% of their investments to the Robo-adviser compared to about 2% for the human equivalent. It will be interesting to see how many people choose to have their money managed by an algorithm. It is a great way to save money on investments but you are removing services that humans could provide you with, like tax planning and retirement planning. With Charles Schwab’s total client assets totaling $2.4 trillion at the end of September, 2014, a lot of their current clients will have the option to invest through Robo-adviser. Having a machine manage your money is not for everyone. Having a human adviser can alter the risk of your investments. If you want to invest your money with a little more risk to try to beat the market, you can do that. A Robo-adviser is incapable of using hunches or gut feelings to invest with the possibility of getting high returns. Robo-advisers that try to beat the market are based on pure math. One thing that we have figured out in finance is that there is no proven, good way to predict what will happen in the world market by creating an algorithm. Also, the Robo-adviser way of investing requires keeping 6% and 30% of your
