Active Management Robo-Advisors, the Next Digital Investment Wave
One of the most appealing features of the robo-advisor is the fact that you can get the benefits of professional financial management with lower fees than a traditional financial professional. Is the active management robo-advisor next?
Did you believe that robo-advisors only offered only limited or passive investing?
Not necessarily. Some active management robo-advisors do have those autonomous investing options, certainly, but many robo-advisors also have active management approaches along with human guidance.
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What this active robo-advisor looks like depends on the platform you choose, and you should take a look at a few different options before choosing your digital advisor. Some active management strategies might help time the market as well as provide emotional support.
Overall, the goal of these actively managed robo-advisors is to beat the market.
What Are the Benefits of Active Management Robo-Advisors?
There are many benefits to robo-advisors in general, and they’re worth looking into before you make any decisions.
Robo-advisors with active management are unique in some ways, however. Three benefits of actively managed robo-advisors are:
1. Timing the Market
The typical robo-advisor is great at matching market returns. And that’s quite good as historical stock market returns are approximately 9% with bonds near 5%. In fact, many active investment strategies fail to beat the market averages.
Yet active robo-advisors strive to best the market averages! And with newer and more sophisticated algorithms, it just might be possible.
Timing the market is in contrast with the typical “buy and hold” investment approach.
“Market timing is the practice of buying and selling securities based on economic trends, corporate information, and market factors,” according to InvestingAnswers.
Timing the market strives to capture more of the increases and less of the declines in investment markets.
2. Emotional Support
An actively managed robo-advisor with a human component can also be a huge support in a fluctuating market. After all, a robot may not be able to empathize with your fears but a human advisor might be able to guide you away from an emotional (and bad) decision!
Sometimes you might just need some extra hand holding through a difficult time, when making a big investing decision, or when confronted with a drastic change in your life. While robo-advisors can guide you through these moments with pre-programed options, a human can personalize the decision-making process.
T.Rowe Price’s active plus portfolios combine active fund management with access to human financial consultants. This human plus actively managed investment option is currently available only for retirement accounts with a minimum value of $50,000.
3. Beat the Market
The investing landscape changes drastically, frequently, and rapidly. Active robo-advisor’s, regardless of the particular strategy have one goal – to beat the market.
Active robo-advisors, like their passive counterparts use a variety of strategies. Some offer human advisor access, others only email and phone contact. From BuildingBenjamin’s unique asset classes to QPlum’s hedge fund strategies, there’s an active robo-advisor for any investor seeking to go beyond the market-matching index fund investment approach.
What Does an Active Management Robo-advisor Look Like?
Active management robo-advisors look slightly different depending on the platform.
One active management robo-advisor worth noting is qplum. Qplum uses active management to complement the benefits of a typical robo-advisor. For qplum, this active management is quite affordable: only .50% for all of the managed funds. This means that you are paying only $50.00 each year for every $10,000 managed.
As an actively managed robo-advisor, qplum incorporates all the benefits people have come to associate with robo-advisors: low fees, automatically balanced assets, portfolios designed for various risk tolerances, and more.
On top of all these benefits, qplum provides a human touch. While the initial questions designed to help investors create their portfolios are asked and recorded by artificial intelligence, qplum also flags users’ questions or answers that signal the need for human support. For example, if the AI does not know how to answer a user’s question, the system will automatically get a human advisor on the way to assist.
Qplum also sees these human additions to their robo-advisors as beneficial for helping investors navigate market downturns and avoid acting impulsively or emotionally to loss.
Are you looking for robo-advisors with a human touch? Here are 6 to check out to get started!
2. Personal Capital Advisors
Known for it’s free money and investment management tools, the paid Personal Capital Advisors digital platform is sensitive to changes in the economic climate.
Personal Capital calls it’s investment management approach dynamic asset allocation. The platform creates your portfolio by incorporating your goals, age, risk tolerance level. But unlike passively managed robo-advisors, Personal Capital adjusts your investments when you goals change or the market conditions evolve.
Every Personal Capital Advisors client receives access to certified financial planner to help with investment and finance related advice.
The Personal Capital investment strategy is unique. The Smart WeightingTM approach equal weights the market sectors as opposed to the typical method of market weighting. In other words, equal weight means that you have the same percentage invested in the major market sectors; communications, consumer cyclicals, consumer defense, energy, financial, health care, industrials, materials, technology and energy.
Personal Capital claims that this approach better protects your investments from losses in a market decline and might lead to higher returns than the typical passive index fund approach of other robo-advisors.
3. Alpha Architect
Another robo-advisor with active management is Alpha Architect. Alpha Architect started out working only with extremely wealthy clients but designed an actively managed robo-advisor in 2016 to help them reach more clients.
In order to keep costs low for these investors, Alpha Architect created a robo-advisor that would play up the strengths of the autonomous, set-it-and-forget-it robo-advisor while simultaneously offering additional human support to complement these strengths.
In some ways, Alpha Architect is similar to qplum; however, they also emphasize their investing research heavily on their website, making it clear that investing with Alpha Architect means joining a company that really focuses on understanding investing.
They also believe in the ability to beat the market through taking advantage of a combination of the robo-advisor’s automatic allocations and a human financial planner’s ability to minimize loss.
The active robo-advisor arm of Tradition Capital Management, BuildingBenjamins adopts both strategic and tactical asset allocation using a wide swath of asset classes in their attempt to beat the market. Strategic asset allocation is the static approach of choosing an asset allocation approach and sticking with it. Tactical asset allocation adjusts the percentages of stocks, bonds and other assets according to specific factors and your individual investment goals.
A key feature of BuildingBenjamins is their use of alternative asset classes beyond U.S. and international stock and bond funds including; reinsurance, commodities, alternative lending and others. The .45% AUM management fee is competitive with other actively managed robo-advisors.
5. T.Rowe Price ActivePlus Portfolios
The T.Rowe Price active robo-advisor has 10 model portfolios, for a range of goals. The platform invests in eight to 13 T.Rowe Price actively managed funds that are rebalanced and aligned with your investment goals. Like a traditional robo-advisor, the process begins with a detailed questionnaire to understand your goals and risk tolerance.
The underlying funds are actively managed and the only fees you pay are the underlying management expense ratios of the individual funds.
6. Merrill Edge Guided Investing (MEGI)
Back of America’s Merrill Lynch offers their own version of digital investment robo-advisor. Merrill Edge Guided Investing.
Merrill Edge Guided Investing uses a mix of proprietary software and human guided investment strategies. They do make use of low cost index-based ETFs, which are passive by their very nature. But the use of those funds is managed on an active basis.
The Merrill robo-advisor strategy is driven by their investment management committee, Managed Account Advisors, LLC, which is an affiliate of Merrill Lynch.
MEGI uses what it refers to as Tactical Strategic Shifts. Asset allocations are established when your portfolio is first created, but management will make changes based on shifts in the financial markets. For example, if management believes emerging markets will outperform US based stocks, they’ll increase exposure to emerging markets, while reducing the position in US stocks.
This style of investment management has the goal of outperforming the general stock market.
Should I Choose an Active Management Robo-Advisor?
Qplum, Personal Capital Advisors, Alpha Architect, BuildingBenjamins, T.Rowe Price ActivePlus Portfolios and Merrill Edge Guided Investing are only a few of the actively managed robo-advisors on the market today, and the numbers are likely to keep growing. In the future, it might be difficult to not choose a robo-advisor with active management!
With the frequent access to human advisors, the actively managed robo-advisor is a low cost strategy to attempt to beat the market.
Although you might not want your entire investment portfolio in an active management robo-advisor, it’s nice to be able to use this approach for a portion of your investments. You can attempt to beat the market, for a lower fee than the average 1.02% of AUM charged by financial advisors.
Bonus; Low Fee Robo-Advisors
Since the market fluctuates and changes so frequently, investors are looking for ways to beat the market and make the best trades at the best possible moment. By combining robo-advisors with active management strategies, these actively managed robo-advisors are offering a service that will likely only increase by popular demand.
Updated; September 13, 2018
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