The amount of assets under management by robo-advisors is expected to be $1.5 trillion in 2018by Prospect Team / February 19, 2018 / Leave a comment
You’ve earned your money and you don’t want to put it in the bank—so how do you invest it? One answer has always been to get on the phone to a fund manager who, for a fee, would start putting your cash into new, hot investments. The returns from this can be substantial and over the years it has been a system that made people a lot of money.
But it brought with it a whole host of problems and compromises. For one thing, to get into an “active” fund—that is, a fund managed by an individual or team picking stocks based on their own expertise—you needed to be ultra-wealthy. Second, the fees charged by those fund managers could be pretty steep. And third, there was no guarantee your returns would be any better than simply buying stocks in the top 20 companies listed on the FTSE 100.
In short, the fund management world of old was expensive, exclusive and pretty risky. Worst of all, you were locked in. Once your money was in a fund, it was often very difficult to get it out again. It was an industry ripe for disruption.
In the wake of the financial crisis, that disruption came. Fund managers had eaten up huge losses and the star fund managers of old had lost a good deal of their shine, as they became caught up along with everybody else in the herd behaviour that led to the crash of 2008.
In the place of these “active” funds there began to emerge a new breed, so-called “passive” funds, where instead of hyper-complex investment strategies, fund managers simply bought a piece of the FTSE 100, or some other big index. It was a strategy that—somewhat embarrassingly—turned a better profit than the more exotic strategies.
Passive funds can easily be automated—that is, managed by computers. Customers can now access them online, open an account, select the degree of risk they want and put in their money. It’s a type of fund management that omits the gung-ho stars who acted on instinct. In their place came the quiet hum of the algorithms—and it turned out that computers were pretty good at managing people’s money.
“The fund management world of old was expensive, exclusive and pretty risky. It was an industry ripe for disruption”
So good, in…