Robo advising provides automated wealth and portfolio management. Rather than speaking with a credit union representative, members interact with the platform completely online. Robo advising was initially the domain of fintechs but has moved into the broader financial services space.
Many fintechs do not have branches and, in some cases, lack online customer representatives. However, that isn't a problem for their customers who like the non-human, no-hassle interactions. Low fees also help. From this offering was born the robo advisor.
Robo advising moved from purely fintechs to larger financial institutions. These institutions offered low-cost robo advising alongside their human-focused financial and wealth advising. For many institutions, it was a way to keep up with the competition and provide additional services to their customer base.
Robo advisors generally ask a few questions and use the responses to build an investor risk profile and determine investment goals. From this profile, the robo advisor can suggest portfolio allocations aligned with the investor's risk tolerance and goals. The investor can choose to go with the suggested portfolio or make changes.
The robo advisor can do several trades in a single day, depending on the investor's profile and market conditions. Many robo advisors try to trade efficiently by avoiding wash sales and utilizing tax-loss harvesting. Tax loss harvesting is a method that sells profitable shares to close out losing shares.
It's not uncommon for a robo advisor to trade in fractional shares, which is helpful for smaller accounts. Traditional features such as automated monthly transfers are also available through robo advisors.
Many credit unions have lacked a robo advising product. But that tide is turning. With the availability of robo advising third-party platforms, credit unions can more easily and cost-effectively integrate robo advising.
Management fees are usually under 1% for members, with many under 0.50%. There can also be a minimum investment to use the service.