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This $1.4 Billion Robo-Advisor Deal Will Affect 130 Million Millennial and Gen Z Investors


Robo-advisors are poised to grow over $41 billion by 2027. And Zurich-based bank UBS is targeting tech-savvy investors with the acquisition of one of the top robo-advisors, Wealthfront. Financial experts say this is part of a larger industry trend that uses robots to manage wealth. But should you trust a robo-advisor with your money? Let’s break down what robo-advisors do and how they compare with financial advisors.

If you prefer a human-based approach, a financial advisor can work with you directly to create a financial plan for your needs and goals.

UBS’s $1.4 billion acquisition of Wealthfront at the end of January is part of a strategic deal that targets a new generation of investors who are often underserved and want digital-first solutions to make smaller investments and take care of basic financial planning needs.

This trend could also drive advisory firms to consider hybrid models where they can serve both high-net-worth clients through personalized advisory services, while making wealth management more accessible to less affluent investors through digital and remote-based options.

“Adding Wealthfront’s capabilities and client base to our global investment ecosystem will significantly boost our ability to grow our business in the US,” said UBS Group CEO Ralph Hamers in a statement on January 26.

UBS says that Wealthfront targets more than 130 million “millennial and Gen Z investors” who are part of a client segment that has “significant domestic growth potential.” And the Swiss bank estimated during an earnings presentation on February 1 that millennial wealth will grow five times faster than baby boomer wealth.

Keeping this in mind, UBS aims to create a mixed model that combines automated investing with personalized financial planning, in addition to banking services that include “securities backed loans, instant transfers to investment accounts, direct deposit, bill pay, and transfer services.”

“Wealthfront complements our core business in the U.S. providing wealth management to high net worth and ultra high net worth investors through trusted relationships with financial advisors, and will enhance our long-term ambition to deliver a scalable, digital-led wealth management solution to affluent investors,” Hamers said.

This is not the first time that a top robo-advisor was acquired with the intent of combining digital and human financial services. In 2020, Empower Retirement bought the digital wealth advisor Personal Capital for $1 billion.

“The acquisition of Personal Capital and the integration of their tools and capabilities into the Empower offering is designed to create a best-of-breed platform — powered by digital and human advice — to help individuals achieve their financial goals,” said Empower President and Chief Executive Officer Edmund F. Murphy III in a June 29, 2020 statement.

What Can a Robo-Advisor Do for You?

SmartAsset: UBS Buys Wealthfront. How Robo-Advisors Are Changing Finance.

Allied Market Research says that robo-advisors will grow more than 10 times in value in just eight years. The market research and advisory company sized the market in 2019 at $4.51 billion and projects it to reach $41.07 billion by 2027.

Robo-advisors are automated platforms that use algorithms to help you manage an investment portfolio with minimal human intervention.

Your account is set up by answering investment-related questions about your age, assets, risk tolerance and financial goals. The robo-advisor will then plug your answers into an algorithm that will guide your trading, rebalancing, tax-loss harvesting and other investment strategies.

Robo-advisors generally benefit new investors, those who have less money to invest and those who are making simple financial movements. In this sense, these algorithm-based platforms could help you grow small amounts of money until you reach a higher investment threshold.

Advisory HQ News Corp says that some wealth managers in 2021 required a $3,000,000 investable asset minimum. Others had a much lower threshold requiring $150,000.

You should keep in mind that some financial advisory firms could have lower minimum account requirements and waive higher ones based on their discretion. But if you invest a small amount of money, advisor fees could eat into your returns.

Robots vs. Humans: Which Is Better for Your Finances?

The best financial strategy often boils down to the type of help that you need and how much money you have to invest. Low-cost software and algorithms can make robo-advisors more affordable and accessible. But financial advisors can offer you a more comprehensive strategy for your long-term financial goals.

Personalized financial advisory services generally cost more. Advisory HQ News Corp says that the average financial advisor fee in 2021 was 1.18% for $50,000 of assets under management (which adds up to $590 annually).

You should note, however, that because the fee is structured on a sliding scale, high-net-worth individuals could also benefit from a lower fee: 1.02% for $1 million ($10,200 annually), 0.84% for $5 million ($42,000 annually) and 0.59% for $30 million ($177,000 annually).

By comparison, Advisory HQ News Corp says robo-advisors generally cost between 0.25% and 0.50% of assets under management in 2021. So for $50,000 at 0.25% you would pay $125 annually (and $250 with a 0.50% fee).

SmartAsset: UBS Buys Wealthfront. How Robo-Advisors Are Changing Finance.

When comparing robo-advisors with financial advisors, here are two other things to keep in mind:

Value vs. cost. If you’re new to investing and have very little money, a robo-advisor could be your best option to open and manage an account. But because robo-advisors use algorithms to make their investment decisions, this streamlined one-size-fits-all approach could give you less flexibility for more complicated financial needs.

Hands-off vs. hands-on management. If you’re looking to passively buy-and-hold small investments for a period of time, a robo-advisor could be an affordable and simple option. However, if you’re looking to actively move larger amounts of money based on trade recommendations that intend to outperform a market, then you might be better suited for a financial advisor.

Bottom Line

UBS bought one of the top robo-advisors, Wealthfront, for $1.4 billion. The Swiss bank aims to expand its services to reach 130 millennial and Gen Z investors who are looking for tech-savvy approaches to satisfy their financial needs.

Whether you could benefit from a financial advisor or a robo-advisor will depend on how much money you have and the type of financial help that you need.

Robo-advisors generally benefit new investors with little money and simple investments. Those with more money and complicated financial goals usually benefit more from a financial advisor.

However, investors could also use robo-advisors to raise money until they reach the minimum investment requirement for a financial advisor.

Tips for Finding a Financial Advisor

  • SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Consider a few advisors before settling on one. Finding a trustworthy advisor is important for your finances. Here are the questions you should ask an advisor to ensure that you are making the right choice.
  • If you’re looking for lower minimum investment account requirements and fees, here’s a roundup of top robo-advisors for your needs.

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