With their industry still in its infancy, roboadvisors are still (rightfully) focused on providing basic features to their users. However, at RoboRiches, I'm fortunate enough to have the ability to dream. After all, it is a lot easier to imagine new and exciting features when you aren't constrained by the process of actually designing and building them. With that said, I am kicking off a new feature here at RR. Starting with this post, I am going to keep a running list of all of the features that I'd like to see roboadvisors develop and provide to their users. So consider this my "call to arms" to all the roboadvisors out there; here is what I'm waiting to see:
One of the biggest advantages touted by roboadvisors is that their products remove the human element from investing. The process is mechanical with any and all changes being driven by proven investment theory, rather than emotion. However, the problem is that this is only the case as long as a roboadvisor's algorithm remains activated. Any investor that is particularly determined (be it from fear or greed) can always turn the system off simply by withdrawing their funds. In my opinion, this is a major weakness for roboadvisors and I would like to see them install some sort or hurdle or "guardrail" to prevent this. It doesn't have to be anything crazy, just enough to force investors to think about what they are doing. For example, any time a user attempts to make a full withdrawal following a certain performance threshold (say a loss of 10%), the user could be forced through a series of additional screens highlighting things like the adverse effects of going to cash before recouping losses (thus making them permanent) and the average historical length of drawdown for that user's allocation. The process would be designed to be straightforward enough to not be too annoying for those in control or their emotions, while meaningful enough to get the remainder to stop and consider what they are doing.
When saving and investing for retirement, how does one measure exactly how they're doing? You might look at account performance compared to a benchmark to see if you're "beating the market" or you might check your portfolio total to see if you're on track to meet your "number" by retirement. Both make sense, but in addition to those, I'd like to see how I'm doing relative to my peers. Think about it - everyone likes to know how they stack up against the Joneses and roboadvisors have everything required to provide that information. They have portfolio and contribution information that can be easily (and confidentially) aggregated across various variables including age, location, occupation, or salary. Talk about motivation!
With roboavisors taking out a lot of the human touch, I think that one great additional feature would be a tightly moderated online community. A good example is www.bogleheads.org. By including an online community that provides users a place to go to discuss personal finance issues that would normally be reviewed with your traditional human advisor, there is then no perceived gap in service versus the alternative. You can consider it crowdsourcing for everything that the roboadvisors don't explicitly cover.
Check out more articles written here at RoboRiches in our archives.
There are many roboadvisors to choose from; each with distinct characteristics and a wide variety of services offered. We break down the similarities and differences between these firms here at The List.