Robo advisors have been taking the investment community by storm, providing a low-cost way for anybody to invest and get a little advice along the way. Their popularity has forced traditional banks to rethink the way they do business, particularly with less affluent customers.
Wells Fargo & Co. is one of the banks that is transforming in the face of its new competition, with its wealth management business reportedly gearing up to roll out a pilot version of a robo advisor service. Reuters, citing a spokeswoman at Wells Fargo, reported the robo advisor service will launch in pilot form in the first half of next year. The bank hasn’t worked out all the details, such as whether the robo advisor will be built in-house or if Wells Fargo will partner with an existing robo advisor to bring the service to customers. It’s going to be available to a small number of clients first.
Robo advisors charge a lot less because they rely on algorithms, not people, to come up with the right investment plan. Users are put through a series of questions, and from there, the computer provides investment plans, taking into account their goals, risk tolerance and investment horizon. Investors who don’t want to pay a lot in fees are drawn to robo advisors, as are people who may not have thousands upon thousands of dollars to invest.
At the same time that Wells Fargo confirmed its impending robo advisor service, it released a study highlighting the fact that most investors don’t even know what a robo advisor is. According to Wells Fargo, less than half of investors with $10,000 or more in investments have heard about robo advisors, and only 5 percent have reported using one.
“Automated investing tools are still in their infancy, but we expect awareness to grow quickly,” said Devon McConnell, head of digital for Wells Fargo Advisors, in a statement. “Similar to online shopping 10 years ago, there is an adoption curve, and we anticipate the same pattern will unfold as more investors become familiar and comfortable with these new ways of investing.”