Robo-advisors are a class of financial adviser that provides portfolio management online with minimal human intervention. [ 1 ] [ 2 ] While their recommendations may vary, they all employ algorithms such as Modern portfolio theory that originally served the traditional advisory community, which has relied on algorithmic templates to conduct portfolio management since at least 2005. [ 3 ]

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§ Total Assets Under Management [ edit ]

Collectively, robo-advisors directly managed about $19 billion as of December 2014, according to a study by Corporate Insight. This figure represents a 21 percent increase in assets under management since July, and a 65 percent increase since April. [ 4 ] That growth coincides with an announcement from Charles Schwab that it will introduce a robo-advisory service in 2015. [ 5 ]

Other designations for these financial technology companies include automated investment advisor, online investment advisor and digital investment advisor. While such advisors are most common in the United States. they are also present in Europe. [ 6 ] In the United States, robo-advisors must be registered investment advisors. which are regulated by the Securities and Exchange Commission .

§ Definition [ edit ]

Legally, the term financial advisor applies to any entity giving advice about securities. But most robo-advisors limit themselves to providing portfolio management (i.e. allocating investments among asset classes) without addressing issues such as estate and retirement planning and cash-flow management, which are also the domain of financial planning.

§ Industry Context [ edit ]

The tools they employ to manage client portfolios differ little from the portfolio management software already widely used in the profession. The main difference is in distribution channel. Until recently, portfolio management was almost exclusively conducted through human advisors and sold in a bundle with other services. Now, consumers have direct access to portfolio management tools, in the same way that they obtained access to brokerage houses like Charles Schwab and stock trading services with the advent of the Internet. [ 7 ]

The customer acquisition costs and time constraints faced by traditional human advisors have left many middle-class investors underadvised or unable to obtain portfolio management services because of the minimums imposed on investable assets. [ 8 ]