Robo-advisors are on the rise. Here’s how they match up against the needs of women.
Self-driving cars, non-human waiters, and robo bomb squads — just a few of the things illustrating the rise of a revolution characterized by automation. It follows that personal finance and investment would soon fall susceptible to the rise of the robot. Despite being virtually nonexistent six years ago, data gathered by InsideBitcoins suggests that the robo-advisor market in the United States will reach over $1 trillion (USD) this year. And by 2023? A staggering $1.5 trillion.
So what exactly is this latest robotic phenomenon?
Robo-advisors are automated digital platforms which offer algorithm-based investment services with little to no human instruction.
Generally, to begin using such an automated platform, you would simply input your basic information, complete a short survey, and the robo-advisor would take it from there. Before you know it, you would have a personalized investment portfolio curated by the robo-advisor’s consideration of your needs (age, risk tolerance, and time horizon) alongside its algorithm. Sounds simple, right?
Robo-advisors can be an attractive investment opportunity, especially if you aren’t sure where to begin with investing. And apparently men have taken notice — 27% of male respondents to an Investopedia survey report using robo-advisors, as opposed to only 16% of women.
What’s causing this gender gap in the use of robo-advisors?
Well, let’s consider what we know about women and investing. Studies published in the International Journal of Bank Marketing show that women tend to research their investments more thoroughly, taking a significant depth of decision-making detail into consideration. They forego time constraints in favor of learning as much as possible about their potential investments. Men, on the other hand, are more likely to simplify data and base their decisions on the bigger picture of the investment. In short, men like to take the simplest approach and keep it moving, whereas women prefer digging deep and progressing at a comfortable pace.
A report by the National Council for Research on Women cites Glenda Stone, CEO of Aurora and the co-chair of the U.K. Women’s Enterprise Taskforce: “[As] investors, women do 60 percent more work than men before making a decision. They think in a more holistic, futuristic way…. They are good at spotting trends and market rises, partly because they are socially very aware and they can spot the implications of social observations.”
So how do robo-advisors even align with the investment habits of women?
When looking at investment platforms, it is important to consider what they don’t offer. Robo-advisors provide services, but not financial planning, which is a key factor in achieving financial success. These algorithm-backed platforms are focused on long-term investments and retirement plans, not necessarily on short-term debt-relief or creating emergency funds. And while they might provide options, they provide little to no context on your investments. They simply do not provide the comprehensive information that is fundamental to most women looking to invest not only their money, but their minds into their portfolios.
This may prove particularly difficult for women looking to invest in SRI (socially responsible investment) funds — which are evidently attractive to a majority of female investors. According to a recent survey, 65% of women believe the social, political, and environmental impacts of their investments are important. As such, robo-advisors are beginning to integrate SRI and ESG (environmental, social, and corporate governance) criteria into their platforms. Unfortunately, some automated advisors (we’re looking at you, Personal Capital) only offer SRI portfolio options to higher net-worth investors with accounts valued over $100,000 — or in the case of Wealthfront, potentially up to $500,000. Some platforms, such as Betterment, solely pursue SRI funds for U.S. large-cap stocks and emerging markets. However, while some robo-advisors may identify SRI ETFs for you, this can easily be done on your own without having to front the additional fees charged by these platforms. Knowing what we do about female investors, we can surely count on them to handpick funds that align with their values without having a robot charging them, or requiring a high value of their account to do so.
This is precisely why Alinea Invest was founded by women — to create a social trading platform that is curated to our needs as women with financial literacy at the forefront.
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By : Safa Saleem