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automated investing: generations

Convenience, transparency and cost are the main things driving a tech-savvy generation to automated servicesTERADAT SANTIVIVUT/Getty Images/iStockphoto

Automated advisers are the next big thing in self-directed investing, and tech-savvy but cash-strapped millennials have already started embracing the new automated investment services while maintaining relationships with the people behind the apps.

"When it comes to servicing the instant needs and technology-fuelled millennial group, leveraging technology such as machine learning and deep data analytics drives instantaneity and puts users in control," says Rod Hsu, president of the Vancouver mobile payment company nTrust.

The 40-year-old entrepreneur, himself a millennial, observes that investing is one area of the financial industry experiencing innovation as a result of the growing presence of robo-advisers. Millennials are especially keen to explore the changing landscape, regarding it as a new digital frontier.

"Millennials like the convenience, transparency and overall value of our services," says Edward Kholodenko, president and chief executive officer of the automated-adviser firm Questrade Inc.

The main services offered by automated advisers are basic asset allocation, rebalancing and tax-loss harvesting. Regulatory agencies require robo-advisers' allocation recommendations to be reviewed and approved by registered portfolio managers, according to Hugues Langlois, assistant professor of finance at HEC Paris.

John Paterson, a 26-year-old resident of Toronto, uses automated investing to save time and money.

"I already have experience trading stocks for myself online, and decided against going with a traditional adviser as I didn't feel I'd have enough time to thoroughly evaluate them and identify any who could outperform the markets," Mr. Paterson says.

"I knew I wanted to invest in a diversified ETFs portfolio, and with an automated wealth management service I have a secure way to invest passively while saving time."

What he most likes about robo-advisers is their convenience.

"It is a combination of the ease of use, the ease of signing up, and the low fees, " Mr. Paterson comments. "Over a longer timeline the ultimate gauge of my happiness will be what kind of returns I get on my investments, but for now the user friendliness is what I like best."

Ashton Marcus is a 28-year-old public relations consultant who runs her own company in Toronto. She relies on easy-to-use automated systems that provide step-by-step instructions, personalized options and detailed reports to help her build her business.

"It's not uncommon for millennials to interact with robots instead of humans," Ms. Marcus says. "For most of us it's about doing that initial online research, tackling investments on our own time, and utilizing the human element as a secondary resource."

Assaf Weisz, the co-founder and managing director of Purpose Capital, an investment advisory firm in Toronto with many millennials in its stakeholder group, says the drive among millennials to embrace robo-advisers has many factors.

"Millennials are digital natives and unburdened by a suspicion of person-less services. Culturally, shaking a hand and sitting across the table from someone typically isn't a prerequisite to building trust the way it used to be," observes Mr. Weisz.

"Many of our daily interactions are digital first, and because of that we've developed a comfort level for placing key financial information online."

For Amarpreet Kaur, a 23-year-old operations manager in Brampton, Ont., robo-advisers are just another form of technology helping her keep pace with her changing world.

"My generation has the tendency to be quick at making a decision," Ms. Kaur says.

"We observe a lot, and are surrounded by technology day in and day out. Everything is so fast-paced and we need technology to keep up with that. I personally want to explore different options and not be afraid to say no. If an app could take care of the thinking and help me financially in the long run, that's the ideal situation. When the app knows what I favour and how risk-averse I am, I can be more comfortable making investments and strengthening my portfolio."

Automated investment advisory services are as accessible as social media and shopping online. Millennials see them as extensions of their cellphones. And yet the technology is ever-evolving, making robo-advisers subject to unpredictability. It is why millennials who use them will still crave the personal touch, to assure them whenever things go wrong, say experts.

"There's a certain level of automation which may work when encountering a problem or issue," Mr. Hsu says. "But nothing beats dealing with a human."

Mississauga resident Riyad Mobeen, 31, is the founder of the mobile tech startup Xumee, a company for job seekers that replaces the traditional résumé with 30-second video pitches, and he says it is a matter of inspiring trust.

"Trust will always be part of our decision-making process, Mr. Mobeen says.

"Automating financial services will surely blend well with our lifestyle, but I believe there needs to be a human element that can empathize with us – something most automated services can't do."

Barbara Stewart is a portfolio manager and partner with Cumberland Private Wealth Management in Toronto who has done extensive research into automated advisers in the marketplace.

"My research suggests that, yes, sometimes the robot will completely replace the human adviser. But other times the robot will augment the human adviser. And most of the time the robot will reach a new market that is not currently being addressed by human advisers," Ms. Stewart says.

"My firm uses various automated technologies to pick stocks, trade stocks and monitor our positions. We have robots everywhere, and will use more in the future. But we haven't gotten rid of even a single human as a result. Instead, the robots have freed us up to do the special and valuable things that only humans can do."

Generally speaking, what humans ought to do best is customer service. And yet Mr. Weisz thinks the financial industry lags behind others when it comes to catering to the needs and wants of millennials.

"The customer experience can feel stuffy, overly corporate, and be riddled with opaque fees and technical terminology that create distance and intimidation more than it educates," Mr. Weisz says.

"Many of the robo-advisers are keenly aware of that, and design their user experience to feel much friendlier, more approachable, and more in line with the experience millennials get from many of the other services they use online."

Automated advisers, he believes, offer an opportunity for the rest of the financial industry to learn and adapt quickly. One Canadian bank, for instance, has already rolled out auto-advising services.

"I don't think millennials have any loyalty to robo-advisers per se," Mr. Weisz continues.

"I think it's that robo-advisers have been the first to offer a significant improvement in the user experience. The hope is that this sets a new standard across the industry."

Editor's note: An earlier version of this story had Amarpreet Kaur's age wrong. This is a corrected version of the story

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