Robo-advisor Wealthfront has announced a ‘freemium’ model of its financial planning services.
Co-founder Dan Carroll explained that by year end, anyone will be able to download the Wealthfront app, connect all of their financial accounts, build a personalised financial plan and receive recommendations powered by the firm’s automated financial advice engine, Path.
Using a combination of client financial information and third party data, Path uses techniques like machine learning to provide answers to over 10,000 financial questions.
“Our software is encouraging good financial behaviour and can scale in a way that the current models cannot, Carroll stated. “We have the chance to scale our advice to 10 or 10 billion people without sacrificing quality – Americans desperately need access to financial planning and advice and it shouldn’t be behind a paywall.”
Carroll continued that Wealthfront’s competitors are all moving towards the hybrid model, “creating call centres with CFPs [Chartered Financial Planners] who are aided by software to deliver financial planning for a premium that ranges anywhere from 0.4 to 2 per cent”.
He argued that financial advice does not need to be delivered through a person, and that by focusing on building technology-based solutions, it can be delivered for free.
Heike van den Hoevel, senior wealth management analyst at GlobalData, commented: “Our data shows that cost of advice is a big deterrent, so making higher-value services such as pension advice available free of charge will allow Wealthfront to widen its customer base and take away market share from traditional players.”
GlobalData’s 2016 and 2017 Mass Affluent Investors Surveys showed that a fifth of investors globally have made use of a robo-advisor at some stage during the investment process. However, only one per cent regard it as their primary provider.
A report from Juniper Research earlier this year suggested that robo-advisors are broadening the appeal of the wealth management market, with smartphone apps making the investment process more appealing to the Millennial age group.
Although Wealthfront is the first to attempt a fee-free model, other digital wealth managers have leveraged lower overheads from technology use to offer far lower fees than traditional competitors - causing some to expect a significant shakeup in the advice market in the next few years.
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