When Mark Simmons was in college, he asked one of his teachers, a bank president, whether the growing prevalence of online banking might make jobs in banking obsolete. The answer: Absolutely not. In fact, people might even need bankers even more.
As Business Report details in a feature from its latest issue, Simmons, now a financial planner and portfolio manager in Baton Rouge, recalls that conversation when asked if computerized investment services, also known as robo-advisers, are a threat to his industry. Most investors will prefer working with a human, he says.
“Money is such an emotional thing that most people have trouble trusting it to a computer-generated plan,” says Simmons, president of Simmons Asset Management. “Ninety percent of my job is behavioral finance, which is managing behaviors.”
Robo-advisers such as Betterment and Wealthfront have been gaining popularity, but they remain a small sliver of the overall marketplace. A survey by consulting firm Corporate Insight found that total assets managed by the 11 leading robo-advisers in the United States rose 65% in 2014, hitting $19 billion. While significant, this figure represents less than 0.1% of the $33 trillion in retail investable assets, according to the international consulting firm Deloitte.
Simmons compares robo-advisers to tax preparation software. Such programs might work pretty well for many people a lot of the time, but they don’t catch everything, he says.
“There’s always going to be something that’s going to be missed [by robo-advisers],” he says.
Donald Andrews, dean of the College of Business at Southern University, says the growing popularity of robo-advisers could become a threat to the larger investment industry. It’s no surprise that millennials, who essentially have never known life without the Internet and are used to no-cost or low-cost services online, are drawn to the new market.
“This is an area that is prime for disruption as financial markets move more and more to automated transactions,” Andrews says, noting the continued development of artificial intelligence technology such as IBM’s Watson supercomputer.
Adam Ritt is director of communications for BetterInvesting, which recommends holding a diverse stock portfolio, investing regularly, and reinvesting earnings and dividends from stocks. He says he’s dubious about the efficacy of robo-advisers.
“Once they’ve built a history and had to operate through bear and bull markets and we can see how customers succeed or fail using these programs, we’ll have a better idea of what they can do,” Ritt says. “For now, I view any such automated program with skepticism.”
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