Investing > Future of Robo Advisors: Where Will They Go From Here?

Future of Robo Advisors: Where Will They Go From Here?

Robo advisors have made quite a splash in the short time they have been around. But how will the tech fare going into the future?

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.

Robo advising has made a rather large impact on the financial sector. Since emerging in the wake of the Great Recession, robo advising has built up a reputation as an efficient and low-cost investment management solution. As of 2018, robo advisors managed an estimated $257 billion worth in assets which is expected to increase to half a trillion by 2023.

Despite this impressive growth in less than a decade, many traditionally-minded investors remain skeptical about the future of robo advising. While some tout robo advising as the next-game changing innovation in the investment world, others think of it as just a passing fad that will soon run out of steam.

Projected US Robo Advisors Assets Under Management

The detractors may have a point too. There is no doubt that many initial proponents of robo advising were a bit too optimistic about its future growth.

Initial projection of robo advising predicted that by 2016, robo advisors would manage more than $1.5 trillion in assets and $2.2 trillion by 2020. The actual figures are hardly as satisfying.

Aside from worries about a lack of future growth, many are apprehensive about how effective robo advising actually is. After all, robo advisors are unthinking machines; how could they grasp the subtle nuance and intuition that goes into successful investing? Some are also worried about how the rise of robo advisors will affect traditional wealth management firms.

To talk about the future of robo advising we need to go back to where it all started a decade previously.

Brief History of Robo Advising

Robo advising has been around since at least 2006 with Mint launching its semi-automated finance management app. Robo advising as a form of investment did not really emerge until after the 2008-2009 global financial recession.

After the housing market crash, negative sentiment caused large swathes of investor flight as more people pulled out of equities and sat on their cash. As interest rates fell, traditional financial institutions were having problems helping clients build wealth.

Robo advisors stepped in to fill this void. Companies like Betterment and Wealthfront began using algorithms to invest in and diversify clients’ funds. The tech that these companies were using had been available to industry investors since at least 2001, but it was not until 2008 that the first robo advisors became available to the public.

Initial robo advisors were pretty simple and only had a few services to offer clients. The main innovation robo advisors introduced was the ability to automatically rebalance investor assets whenever market forces skew a portfolio’s allocation ratios. This form of automated passive wealth management was the main thing robo advisors brought to the table in the early days of the current decade.

By 2014, the total amount of assets managed by robo advisors had climbed to $19 billion and robo advising firm Betterment had cemented itself as the largest robo advising firm in the world. By 2015, robo advisors had entered the world’s second-largest economy in China and by 2017 the top 3 robo advising firms managed more than half a million client accounts.

Nowadays, there are over 100 robo advising firms who manage client’s funds from around the world. As the field has grown, robo advising firms have added more services, such as in-person investment advice. Today, the single largest robo advising firm in the world is Vanguard which as of 2018 manages an estimated $107 billion in client assets.

Robo Advisors in the Current Day: Problems?

Despite this initially optimistic trajectory, many feel that robo advisors have stalled in the past few years. While the effect robo advising has had in the investment world is undeniable, initial projections were overly optimistic. Some claim that robo advising will soon hit a plateau that it won’t be able to overcome.

For instance, Nobel Laureate and professor of finance at MIT Robert Merton argues that the main roadblock robo investors are running into is a lack of trust. According to Merton, robo advisors will not displace the traditional wealth management sphere because human advisors can do things that robo advisors cannot, such as understand the human element in their clients.

This criticism seems to have some bite too. A recent survey by ING Mobile Banking found that a large majority of investors (91%) would not be comfortable having a machine handle their financial decisions.

The infograph showing data on people's readiness to use robo-advisors
Although robo-advisors brought a revolution to the world of investing, some are still skeptical about their efficacy.

It seems that there are definitely still some trust issues that might be holding robo advisors back. If the majority of people still do not feel comfortable letting machines handle their money, it’s hard to see how robo advisors can really catch on.

Another common criticism of robo advisors is that they have severe contextual limitations. In other words, robo advisors are limited to doing exactly what you tell them to do, nothing more, and nothing less.

Robo advisors lack the foresight and long-term planning skills that human advisors have. This means that robo advisors cannot form complex investment plans and cannot really reason with hypotheticals.

Moreover, robo advisors are not really capable of reasoning from incomplete sets of information or making educated guesses about what kinds of investments their clients would like. If a robo advisor is not specified to do something, it won’t do it. A human advisor would be able to use inductive reasoning to figure out what to do when they haven’t been explicitly told what to do.

Lastly, some people have worries about how profitable robo advisors are and if they are any more effective than traditional management services. According to a piece by International Banker, many robo advising firms are having trouble breaking even and generating profits.

For instance, Nutmeg, the UK’s largest robo advising firm in terms of assets managed, manages over $1.5 billion funds since being founded in 2011. However, Nutmeg still remains unable to turn a profit even though it has over 50,000 customers. Most experts chalk these issues up to low fees and the small average size of client portfolios.

Given that robo advisors emerged as a response to the high charges of traditional investment firms in the wake of the housing crash, they have to rely on building client volume to boost revenue, which is in itself a costly measure.

What Is the Future of Robo Advising?

So, has robo advising finally stalled out, or does it still have the potential to drastically change the investment world? We think that if robo advising is going to flourish it needs to overcome two things.

Perhaps the single biggest challenge facing robo advisors is that they cannot currently offer services that human advisors can. Despite the name, robo advisors do not “advise” anyone. All they do is automate parts of the investment process.

Human advisors can think long-term and help you plan for your financial future. Human investors can also give advice about specific investments and talk you out of bad investments.

We are not going to pretend that current AI technology can do these kinds of things. However, AI tech has made huge advancements in recent years and it seems like every week people are finding new AI applications.

For instance, AI software is used in the finance sector not only to automate transactions but also to create reports/analyses, simplify and summarise market data, and even make accurate predictions in the stock market. There are even pieces of AI software that can create original music and art, two realms long though to be out of the capabilities of machines (whether these AI creations count as “art” is an interesting, but separate, philosophical question).

The basic point is that AI technology is still in its infancy and there is no telling what heights it can climb to. The idea that we might soon have machines capable of long-term financial forecasts and planning might sound absurd, but so was the idea 100 years ago that we could put a human on the moon. At the very least, the notion that we have reached some hard limit as to the capabilities of AI is most likely false.

The other major issue plaguing robo advisors seems to be a lack of trust. Most people dislike the idea of handing over their well-being to an unthinking machine. This lack of trust is understandable and is also a major concern in the self-driving car industry.

This aversion to algorithmic machine decision making is perceived as a major concern for robo advisors. Fortunately, there is some reason to think that this issue won’t be an issue at all. Firstly, the more people see the benefit of some automated technology, the more likely they are to be open to using the service themselves.

A recent study published in the Social Science Research Network (SSRN) shows that the better robo advisors perform, the more likely people are to view them favorably. The study found that of the 114 participants, all were equally likely to invest with either a machine or a human investor and that people were likely to expect higher returns from a robo advisor than a human advisor. Perhaps unsurprisingly, the better robo advisors performed, the more likely people were to say they would invest with a robo advisor.

Moreover, when robo advisors perform poorly, people are not more likely to switch back to using a human advisor. This finding indicates that the expectation of future returns and observations of success can mitigate any inherent mistrust in algorithmic decision making in the investment sector.

Infograph showing the results of a robo-advisor usage survey
According to some researches, the millennials are most ready to use the robo-advisor technology.

Secondly, there is research indicating that younger people, in general, are more likely to be open to using automated technology for handling investments. A survey performed by fund management company Global X that nearly 1 in 5 millennials are comfortable investing with robo advisors, This figure compares to just 1 in 10 of Gen X’ers and 1 in 30 Baby Boomers.

As millennials get older and make up a larger portion of the investing population, it is likely more will invest using automated technologies. Many robo advising platforms such as Gatsby and Acorns have picked up on this trend and exclusively market themselves to Millennial and Gen Z investors.


Despite a great initial start, robo advising seems to be at an important crossroads. There is no doubt that robo advising has already drastically changed the investing landscape, but it still seems to lack the critical mass necessary to drive it forward as the new paradigm for financial management.

In our opinion, two important things need to happen if robo advising is going to succeed. First, AI technology needs to become more advanced so it can handle more complex transactions and planning. The developments of AI in recent years gives us good reason to think that AI can stand up to this challenge in the near future.

Second, the general public needs to build more faith in the idea of using a machine for personal finance. Fortunately, there is good data that positive robo advisor exposure instills positive sentiment towards robo advisors, which will make people more likely to use them. Additionally, demographic shifts to a more technology-friendly generation will likely facilitate this shift of trust.

One more question we will touch on: Do we think that robo advisors will completely eclipse the human presence in the financial sector?

It’s hard to say at this point. Large-scale adaptation of automated technologies in the past have never fully succeeded in removing human activity from a particular sector. Even though factory automation has taken over the brunt of manufacturing, humans are still needed in the equation. As the saying goes, even the robots need someone to build and fix them.

In the very near future, it is unlikely that robo advising will completely overtake traditional financial advising services. However, given a long enough time scale, we can’t really say. The nature and long-term effects of technological change are practically impossible to predict.

We do think we have made a good case here though that the forecast for robo advising is optimistic. As AI tech advances and public sentiment becomes more favorable to automated machines, we expect robo advising to form a new paradigm in the investing world.

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.

Cookies & Privacy uses cookies to provide you with a great experience and enables you to enjoy all the functionality of the site.