“Millennials want “finance at their fingertips”..they want to be able to email and text the financial advisors and talk to them on a real-time basis,”– Greg Fleming, Ex-Morgan Stanley Executive
The major business areas & client offerings in the Wealth & Asset Management space have been covered in the first post in this series at http://www.vamsitalkstech.com/?p=2329
Automated advisors only cover a subset of all of the above at the moment. The major areas of functionality are as below –
- Determine individual Client profiles & preferences—e.g. For a given client profile- determine financial goals, expectations of investment return, diversification etc
- Identify appropriate financial products that can be offered either as pre-packaged portfolios or custom investments based on the client profile identified in the first step
- Establish correct Investment Mix for the client’s profile – these can included but are not ,limited to equities, bonds, ETFs & other securities in the firm’s portfolios . For instance, placing tax-inefficient assets in retirement accounts like IRA’s as well as tax efficient municipal bonds in taxable accounts etc.
- Using a algorithmic approach, choose the appropriate securities for each client account
- Continuously monitor the portfolio & transactions within it to tune performance , lower transaction costs, tax impacts etc based on how the markets are doing. Also ensure that a client’s preferences are being incorporated so that appropriate diversification and risk mitigation is being performed
- Provide value added services like Tax loss harvesting to ensure that the client is taking tax benefits into account as they rebalance portfolios or accrue dividends.
- Finally ,ensure the best user experience by handling a whole range of financial services – trading, account administration, loans,bill pay, cash transfers, tax reporting, statements in one intuitive user interface.
Illustration: Betterment user interface. Source – Joe Jansen
To illustrate these concepts in action, leaders like Wealthfront & Betterment are increasingly adding features where highly relevant, data-driven advice is being provided based on existing data as well as aggregated data from other providers. Wealthfront now provides recommendations on diversification, taxes and fees that are personalized not only to the specific investments in client’s account, but also tailored to their specific financial profile and risk tolerance. For instance, is enough cash being set aside in the emergency fund ? Is a customer holding too much stock in your employer? 
The final post will look at a technology & architectural approach to building out a Robo-advisor. We will also discuss best practices from a WM & industry standpoint in the context of Robo-advisors.
- Wealthfront Blog – “Introducing the new Dashboard”