Robo investment and advisory is gaining traction

Added 27th March 2015

The next wave of technology is being eagerly embraced by hedge funds and wealth management firms, and that could disrupt current models of investment and advisory.

Robo investment and advisory is gaining traction
Bridgewater Associates, the world's largest hedge fund manager, said recently it would launch an artificial intelligence unit to create trading algorithms that make predictions based on historical data and statistical probabilities, according to Bloomberg report.
 
AI has the ability to correlate large amounts of complex data, learn from past predictions and self-correct its approach in order to make better investment decisions.
 
The report also mentioned quantitative investment firms "increasingly hiring programmers and engineers to expand their artificial-intelligence staffs". 
 
Gregor Andrade, a principal at quant firm AQR Capital Management, told Fund Selector Asia that artificial intelligence is another approach to investing that fits the profile of a certain type of hedge fund that uses techniques from computer science to analyse data and find patterns. 
 
"It's a plausible approach," Andrade said. "If they find repeating patterns, they invest. [The analysis] may not have anything with fundamentals, but they find patterns and sometimes patterns can be robust."

Robo wealth management

On the wealth management side, automated advisory services are gaining traction. Sites such as Future Adviser, Wealthfront, Personal Capital and Betterment shape a custom portfolio based on a client's risk profile, track performance and suggest new investment funds that could save thousands of dollars in fees over the lifetime of the investment.
 
These are not insignificant firms. Wealthfront, for example, manages $1.7bn of client assets, up 17x since the beginning of 2013, according to the firm.
 
FutureAdvisor's AUM is $450m, up from $13m (about 3000%) since September 2013, the firm said.
 
Charles Schwab had success with its robo-advisor service for retail clients and has recently announced the upcoming launch of an automated service for advisors, according to a Financial Planning report.
 
"Advisors will be able to put their own brand on the new digital platform which will feature a selection of 200 ETFs drawn from 28 asset classes, automated rebalancing, performance reporting, integration with Schwab systems and tax loss harvesting for accounts greater than $50,000," the report said.
 
"Automated investment management is here to stay," a Schwab official was quoted as saying.
 

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