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What Exactly is an Automated Advisor?

April 08, 2019 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

What Exactly is an Automated Advisor?

If high account minimums and a lack of investing knowledge have kept you from investing in the past, automated advisors could help you get started. An automated advisor is a software application that uses technology to provide financial recommendations.

The application can use an algorithm to gain an understanding of the investor’s goals, time horizon, and risk tolerance to provide a recommendation based on that understanding. These algorithms can use mathematical probabilities to help people make the most strategic investment decisions under current market conditions, based upon chosen risk management levels.

As with most emerging technologies, the concept of automated advising was developed over time. The first semi-automated finance management tool was used in 2006, and more sophisticated versions appeared in 2008.

The earliest versions were improved upon and as the automated advisors grew in effectiveness, the use of the technology spread. Many predict that hundreds of billions of dollars could be managed through automated applications.

How can you use automated advisors to better inform your investing strategy? We’re sharing answers to key questions, ranging from the role human advisors play to benefits of automated advising, plus how different generations are using this technology and more, along with how we use automated investing in SoFi Invest®, a program that combines high-tech with human guidance.

Automated Advisors vs Human Advisors

When people consider investing using this technology, they typically want to weigh what would be gained and what is potentially lost through automated investing. No two automatic advising opportunities are the same, so it’s important to find the right investment company for your financial needs.

Some companies, for example, rely on investment professionals to develop portfolios, whereas others may rely upon artificial intelligence to determine the proper model portfolios.

However, the vast majority use some type of algorithm to properly place investors into the right portfolio, regardless of how that portfolio is constructed. At SoFi, we provide our clients with the power of technology paired with human advisors.

That means when it comes to automated investing, you don’t have to decide between automated advisors vs human advisors. There are options available, including SoFi Invest, that allow you to benefit from both automated advisors and human advisors, so you can get the benefits of both.

Advantages of Automated Investing

Automated investing allows you to take advantage of powerful investing technology, usually at an affordable cost. The algorithms use advanced mathematical formulas, using them according to best practices in investment planning, giving today’s investors access to technologies previously only available to investors with very large investment portfolios.

Automated advisors have made investing even more affordable with lower account minimums and fewer fees. This has allowed more people to enter into the world of investing—including young adults who previously wouldn’t have had the financial wherewithal to do so.

Automated investing is also a significant plus for people who, prior to its availability, didn’t have advanced knowledge of market opportunities but, to save money, tried managing their own investments.

Choose Your Company Wisely

As this technology is becoming increasingly in demand, more companies are offering it to customers. But, one size definitely doesn’t fit all. So you could look for companies that offer goal planning and portfolio selection and diversification.

When it comes to investing, goal planning is personal. Everyone has a different goal in mind and different opinions on how to get there. You want to choose a financial advisor that listens as you describe your financial goals, one that will help you to create a plan and stick to it.

At SoFi, we work with you to establish your risk tolerance and develop an investing plan to help you meet your financial goals. Automated advisors should also invest in a broad swath of assets, ensuring that their investors are properly diversified to help reduce some risk.

Another important piece of investing is rebalancing. Be sure to ask the advisor if and how they rebalance your portfolio. Rebalancing means you change the asset allocation of your portfolio to return to your desired portfolio make-up. If a certain asset becomes a larger or smaller portion of your portfolio than you want, you can reassess and rebalance. The proportion of an investor’s portfolio invested in stocks and bonds, for example, may be adjusted as part of portfolio rebalancing, depending upon market conditions.

Millennials and Automated Advising

One of the biggest challenges facing Millennials is the wealth gap that is causing them to play financial catch-up. One of the best ways to address this gap is to save and invest more. That’s easier in theory than in practice, especially while also paying rent, student loans, and other bills. The earlier you can begin saving and investing, the faster you can close the wealth gap by benefiting from compound interest and (hopefully positive) returns on your investment.

Closing the gap starts with the first step of investing and there are numerous reasons why automated investing has attracted the attention of younger investors looking to take that first step. These include the low points of entry (low initial investment amounts and low fees) and this generation’s comfort with the digital world. Because Millennials are often on the go, automated investing dovetails with their lifestyle as many companies have developed great mobile experiences.

Baby Boomers and Automated Advising

Because of the ease in which Millennials interact with the internet and online applications, it might be expected that Millennials are fueling the rapidly increasing automated investment movement. And, they’re certainly playing their part.

Perhaps more surprising, Baby Boomers are also turning to this technology in growing numbers, appreciating the ability to save on investment fees. The fewer dollars going to automated advisor fees, they figure, the more money will be available for upcoming retirement years.

And, with Americans living longer, there are more years that need to be funded. Baby Boomers also may appreciate the computerized nature of automatic advising, which frees up time.

Wealth Management with SoFi

At SoFi, we believe everyone should have access to investment management. You can start investing with as little as $100. When you open an account with SoFi Invest, you’ll gain access to both automated and human advisors, so you can take advantage of technology and receive personalized advice from our team of financial advisors.

Having ready access to financial advisors allows you to adjust risk tolerance as your financial situation changes and goals evolve—and this is a service that many companies using robo advisors don’t provide.

Because our advisors don’t get paid on commission, their focus is on creating a solid, personalized plan for you, tailored to your unique financial goals and dreams.

Portfolios are recommended based upon your age, income, and assets. They’re invested in a mix of low-cost, index-based exchange-traded funds (ETFs). We manage the portfolio for you, continually tracking market conditions and adjusting as needed.

Users can access their investment accounts online or from the SoFi app, and our platform is convenient, user-friendly, and intuitive. Investors also have access to SoFi member benefits, ranging from career coaching to community events, and can receive discounts on other SoFi products.

Ready to Invest? Make an appointment to speak with a financial planner about how investing with SoFi could help you meet your financial goals.


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The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi can’t guarantee future financial performance, and past performance is no guarantee.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
Advisory services offered through SoFi Wealth LLC, a registered investment advisor.
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