If you aren’t aware of robo investing yet, you probably will be soon. Called robo-investing or robo-advising, these firms use algorithms to invest client savings in ETFs for long-term appreciation.
Aiming to replace financial advisors, robo-investing applications account for customer age, risk thresholds, expected time to retirement, salary, as well as other client traits. The systems, create a portfolio allotment to invest the money based on the information. In order to reduce costs, platforms invest in ETFs instead of typical mutual funds.
Due to its simplicity and ability to limit the need of human interaction between customers and financial advisors, robo-investing products have become popular among younger investors. Heading the industry are Wealthfront and Betterment in the US, as well as Nutmeg in the UK. The sector has also spawned newer entrants bringing innovation to the field such as the Acorns app which rounds up credit cards charges and sets aside the spare change on each purchase into an investing account.
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Still representing a fraction of overall long-term investing, growth of assets under management at robo-advisers has been growing quickly with many employers catching on to the product and beginning to provide it to employees as an option for retirement funds. Earlier in the year, Wealthfront partnered with the San Francisco 49ers and Google to offer the robo-investing services to employees as they have begun to focus on employers.
Following on this trend, Wealthfront has announced that it has closed a $64 million financing round led by Spark Capital Growth. The new round occurs after the firm raised $35 million in funding earlier in the year. According to Wealthfront, despite still not spending any of the initial $35 million that was raised, they believe they are part of a “once-in-a-generation opportunity “ from which they are building a financial company focused on the millennial investors.
When speaking about their firm, Wealthfront’s executives have often compared themselves to Charles Schwab, in the way that broker led to disruption in the investment industry, lowering overall fees to all customers. Along the same line, just as Charles Schwab grew on the backs of providing necessary services to baby boomers, Wealthfront believes it can do the same thing for the millennial generation.
So far, it seems to be working, as Wealthfront surpassed the $1 billion in assets under management mark in June of this year, achieving the milestone in 2.5 years. In comparison to Charles Schwab, it took them six years to achieve the $1 billion mark, which was followed by them growing 10X every six years on their way to $1 trillion under management. Using Charles Schwab as an example of how quickly growth can occur when providing a product that fits the needs of the generation, Wealthfront is hoping to achieve similar results event quicker with their large cash hoard.