There is now more than $200 billion under management by robo advisors — and as the sector has grown, so has its pace of consolidation, the Wall Street Journal writes. With the closure of smaller robos likely, investors need to know what to do if it happens to them, according to the publication.
Survival of the Largest and Swiftest
Some independent robo-advisors have scaled up, such as Betterment or Wealthfront, but many have either closed or merged due to the competition of larger firms, the Wall Street Journal writes. These closures not only create a bad user experience, but could also stop first-time users ever reinvesting, Backend Benchmarking research analyst David Goldstone tells the publication.
If a robo closes, some sell the investments and return the money to customers, as SmartWealth, a platform from UBS Group AG, did back in August, the publication writes. However, this can mean lower overall performance and unexpected capital gains taxes, according to the Wall Street Journal. If this does happen, clients should consult an accountant to see if the taxes can be offset, the publication writes.
Other robos will offer customers the chance to move to a self-directed account with a custodian firm, like Hedgeable did when it closed earlier this year, according to the Wall Street Journal. This is somewhat counter to the idea of the computer-created and -managed portfolio that a robo offers, and if this happens, investors need to compare the fees with similar accounts elsewhere to see if it’s worth moving, the publication writes.
Additionally, hybrid advisers — a mix of wealth management and automated investment — have become more popular, and could be an option for displaced robo customers, according to the Wall Street Journal.
