Wealthfront launches retirement product

BI Intelligence

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With heightened competition from incumbent offerings, independent robo-advisors have been making concentrated differentiation efforts.

In evidence of this, just days after leading US robo-advisor Betterment introduced a hybrid offering last week, its peer Wealthfront took the opposite tack by launching a fully automated retirement saving mobile service, called Path.

Path aims to help the young start saving for retirement early, without the hassle of in-person meetings. Integrated into Wealthfront's dashboard, Path creates a retirement plan with provisional savings targets based on a user's answers to a short questionnaire. It then has the user link their current and checking accounts to the app and automatically analyzes their transaction history to determine their spending and saving habits.

Based on this analysis, the app can tell users whether they will be able to sustain their current lifestyle in retirement; what their net worth will be at the point of retirement; and how much they should start saving immediately. The app features an interactive graph, on which users can adjust metrics — like monthly savings and their retirement age — to see how such changes would affect their savings. It then helps the user decide how much of their savings to allocate to each of their retirement accounts, prioritizing those with the lowest taxes and fees.

Wealthfront emphasizes that the offering has been designed to be fully automated to eliminate what it calls inconvenient in-person meetings with financial planners, and to cut down on fees.

However, prioritizing automation is not necessarily a recipe for success. Research has shown that the overwhelming majority of consumers prefer to have an element of human contact when it comes to investment management, and that many consumers would be willing to pay more to retain access to human advisors. This, coupled with the fact that other players like Betterment are pivoting toward a more hybrid approach, should give Wealthfront pause.

It seems that a fully automated retirement planning tool will have to find some other way of giving its customers the reassurance that they normally seek from human contact if it is to succeed — a chat channel within the app through which customers can contact a human advisor, for example.

Robo advisors are threatening to upend the enormous global wealth management industry in several ways, and they are likely to arrive in full force within the next few years.

Sarah Kocianski, senior research analyst for BI Intelligence, Business Insider’s premium research service, has compiled a detailed report on robo advising that looks at the market for robo advisory services, the drivers behind consumer adoption of robo advising, why the robo advisor market presents an opportunity to traditional wealth management firms, and how startup robo advisors can succeed as massive legacy companies begin offering their own services.

Here are some of the key takeaways from the report:

• Large incumbent wealth managers won't lose out to startups like Betterment and Wealthfront. Instead, they are embracing the technology and launching their own products, which are scaling quickly. 
• Consumers across all asset classes are receptive to robo advisors — including the wealthy. 49% of this group would consider investing some of their assets using a robo advisor.
• The majority of assets managed by robo advisors will come from people who already have some investments. We estimate that the volume of assets that comes from people who don't currently invest will be less than 1% of the total by 2020. 
• Startups are going to find it difficult to scale, and will need to differentiate their products to succeed. They are already doing this by providing white label services to wealth managers, and more customized stand alone solutions. 

 In full, the report:

• Provides a forecast for the volume of assets robo advisors will manage by 2020.
• Highlights the factors that will drive the growth of robo advisors
• Explains the different types of robo advisor business model.
• Details the outlook for incumbents and startup robo advisors in the wealth management industry.

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The choice is yours. But however you decide to acquire this report, you’ve given yourself a powerful advantage in your understanding of robo advisors.