The Computer as a Financial Planner


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David Lyon is chief executive of Oranj, a web platform that allows advisers and clients to interact more efficiently.

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Mark Kauzlarich/The New York Times

COMPUTER-GENERATED investment advice has gotten a lot of attention in the last few years. And for good reason.

Many web-based services have given investors with smaller portfolios access to advice that they wouldn’t otherwise get. And because these services charge lower fees — no need to pay human advisers, after all — that can increase returns on investments that track indexes.

But what has not been clear is what benefit, if any, these so-called robo advisers, which help investors with asset allocation and charge a relatively modest fee for the service, bring to high-net-worth investors.

Suffice it to say there is little consensus. And that is probably fair: There are pluses and minuses among the three dominant ways to use technology in personal investing. Here’s a look at the three:

The Robo Way

Two of the biggest robo advisers are Betterment and Wealthfront.

They both started by courting people who wanted to invest but did not have enough money to meet the minimums of traditional advisers. They charged a fraction of typical advisory fees. In the case of Betterment, the fee is 0.15 percent for accounts larger than $100,000, and it is 0.25 percent at Wealthfront, compared with 1 percent or more for traditional advisers.

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Jon Stein is the founder and chief executive of Betterment, an online automated investment adviser.

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Tina Fineberg for The New York Times

Instead of a supermarket of investing options, both offered a strategy that relied on investment products tied to an index.

Neither has abandoned its base of young, tech-adept investors, but both are looking upmarket with offerings that appeal more to people who are already wealthy, not those trying to amass wealth.

Wealthfront has offerings that normally only sophisticated clients get. It also offers automated tax-loss harvesting — in which a security like an exchange-traded fund that has lost money is sold to get the tax benefit of the loss and is then replaced with a similar security.

By looking at the securities every day — and not just at the end of the year — Wealthfront said it could double the benefits from tax-loss harvesting.

Another service helps people diversify a single, large concentration of stock on the days when the company allows insiders to sell.

“None of our services require any people,” said Andy Rachleff, executive chairman of Wealthfront. With traditional advisers, the fee goes down as the assets go up. But at Wealthfront, he said, “Instead of lowering your fee with more money, we keep the fee constant and give you more value.”

Betterment offers a similar suite of services, including tax-loss harvesting. Jon Stein, its founder and chief executive, said it also had features to help with retirement calculations, including one that determines how much people will get from all sources of retirement income and another that determines how much they can spend in retirement without running out of money.

The Hybrid Way

Can platforms that have attracted investors with $5,000 work for people with $5 million or more? Or are they better suited for younger investors who are overlooked by larger firms?

There is little consensus on who is best served by robo advisers. According to a report by the consultant McKinsey & Company that was released this month, 42 million households worldwide worth a total of $13.5 trillion could benefit from what it calls virtual advice.

The report said people with $100,000 to $1 million would benefit the most from advisers using digital tools. But it expressed skepticism over whether online advisers could attract a broader, more affluent audience.

Yet Steven D. Lockshin, principal of AdvicePeriod, which has $500 million under management, said he had moved 20 percent of his clients’ assets to a new offering from Betterment, called Betterment Institutional. It’s a platform that allows advisers to manage their clients’ investments through Betterment’s technology and then work with clients on more personal issues.

“It’s saving time and not worrying about what’s in the platform,” he said. “We have a heavy emphasis on tax and estate planning. Those are huge-impact items, and we have more time to focus on that.”

(Mr. Lockshin has also invested in Betterment and said he helped develop the platform.)

Mr. Stein said Betterment now had a program that offers telephone consultations with certified financial planners for wealthier prospective clients who have questions about what assets to transfer.

“This is the classic innovation paradigm — you start mass and you build more and more functionality over time,” Mr. Stein said. “We’ve got you covered if what you want is a diversified portfolio of global assets. We’re making more and more tools available to make it easier for the affluent customer to come to us.”

Betterment’s offering is a move toward a hybrid model that many consultants and advisory firms think will appeal to more affluent consumers. It has the benefit of using technology to take over the selection of low-cost investments. And that frees up the adviser to spend more time on conversations with clients.

“The real problem is chaos,” said Bill Harris, chief executive of Personal Capital, a web-based provider of investing and budgeting software that offers personal advice by videoconference. “We put it all together so you can see what you own.”

The client, he added, “just worries about high-level stuff.”

Mr. Harris made clear that much of what his software does, investors could figure out on their own, such as what they own and in what percentages across various accounts and mutual funds. “But you would never do it,” he said. “We make it push-button easy.”

Some skeptics of the robo adviser boom argue that it is nothing new. Mark Hebner, president of Index Fund Advisors, which manages $2.7 billion, said he had been running client portfolios online since 1999 and had met only half of his clients in person.

He said his system, which relies on indexing, freed up time to talk to his clients. And that conversation, he said, focused on “the idea that investment selection should be limited to a portfolio of index funds and the only real issue for investors is how much risk would be appropriate for them.”

The Techie Adviser Way

After writing a report on the different ways of using technology, Tyler Cloherty, a senior manager at the consulting firm Casey, Quirk & Associates, said there were probably limits to how many wealthy clients robo advisers could attract. Instead, he said he saw a move toward advisers who use technology to give clients the type of advice they wanted.

“If I’m the investor, I don’t need my adviser to be that portfolio manager who is pulling all the strings,” he said. “What I’m looking for is, are they executing on this strategy?”

And that is where other, less-ballyhooed technology offerings come in. David Lyon, who runs a registered investment advisory firm in Chicago that is focused on 27 clients with tens of millions of dollars each, is also the chief executive of Oranj, a web platform that allows clients and advisers to interact more efficiently. It is now licensed to over 300 firms.

More than account aggregation or reporting, the software allows advisers to see when clients make changes in their assumptions, like retirement age, and then contact the client sooner than an annual meeting.

“There’s probably something that happened that made him or her change a goal,” Mr. Lyon said. “People’s lives are fluid. This provides a more collaborative way to work together.”

In a twist on this, GuardVest lets clients invite other advisers to look at their portfolios and compare that advice with what their current advisers are giving them.

“The GuardVest user will be far better informed when they discuss their portfolio with their current adviser or when they use GuardVest to evaluate a new adviser under consideration before investing capital,” said Audie Apple, the service’s founder.

What all these tools do for affluent investors is allow them to have a complete picture of their wealth, and maybe even save on some fees. But it may give wealthy investors something more as well — their money does what they want it to do.

Correction: June 19, 2015

An earlier version of this article rendered incorrectly the name of a robo adviser and misstated which accounts it offers tax-loss harvesting. The adviser is Wealthfront, not WealthFront, and it offers the service for all taxable accounts, not just those over $100,000.



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