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Adam Nash

CEO and President, Wealthfront

IF 1999 WAS THE YEAR of the unicorn on Wall Street, 2016 was the year of the cockroach. People hate financial institutions more than ever, with an increasing number of Americans questioning motives. Case and point: the financial advisor.

“One of the great misconceptions is that financial advisors have your best interests at heart,” explains Adam Nash, CEO of automated investing service Wealthfront. “But they’re paid in fees, commissions and kickbacks… It’s impossible to stay neutral.”

John Oliver nailed it when he explained the innate douchiness (er, bias) of advisors on Last Week Tonight. They aren’t accredited; they have no legal requirement to work in your favor. But Disruption likes to focus on potential solutions, not problems, and in this case that means automated investing—computer programs that invest on your behalf.

The question is this: Can a computer, less prone to mathematical error, comprehend subjective risk? Is it more vulnerable to cybercrime? And would you trust one with your savings? In this article, we explore whether there’s still a need for humans on Wall Street.

Can Wall Street be replaced by computers?

THE THING ABOUT HUMANS is that we make terrible investors, underperforming the market by roughly 4% each year.

“That’s because good investing is boring,” Nash explains. “Set aside that humans are inherently emotional about money, but most of us don’t have the time or patience to complete the little, everyday tasks that is takes to be successful.”

Tasks like rebalancing your portfolio or reinvesting dividends, which Nash estimates could be robbing you of nearly 50% of investment profits.

“It’s pennies each day, which seems insignificant. But those small amonunts add a significant amount to your final return.”

Do you want to spend your precious time choosing mutual funds when you could be out with friends? (Or, let’s be honest, binge watching Veep?)

“But computers don’t care about free time and they don’t care whether you have $2 or $200… They weight every decision the same,” Nash continues. “And that’s where the value of automated investing comes into play.”

Why Humans Make Such Bad Investors

When you reinvest dividends the right way, it can actually add a significant amount to your final return.”
“Most people don’t have the time or patience to complete the little, everyday tasks it takes to be a good investor.”

IT’S INFORMATION LIKE THIS that sent previous generations into the wood paneled, Brooks Brothers-clad offices of Wall Street — a place where investors with less than $1M are barely acknowledged.

“Before automated investing services surfaced post-crash, there were really only two ways to invest,” Nash explains. “You could either buy an individual stock or bond — which is very expensive and doesn’t come with any support or advice — or you could hire a traditional adviser somewhere like Merrill Lynch.”

Such large institutions, however, will only talk to you if you’re already rich. They actually charge the lowest fees to the wealthiest people, known as the millionaire’s discount. Young investors were ignored and left to accrue savings in the form of low return, debit card-linked bank accounts.

“In a way, though, automated investing is the democratization of investing,” he continues. “It’s the first time it doesn’t matter if you have $500 or $5M dollars…. Everyone is treated the same.”

Wealthfront and their competitors like Betterment and Justwealth show such commitment to young investors in their pricing structure.

“These services support the trend of offering high quality advice at low prices,” Nash says. “At Wealthfront, for example, we don’t make any money on your first $10k… after that, we get one quarter of 1%. And while we like to think we’re leading the charge in terms of pricing, we’re part of a larger trend.”

Not only does this enable Millennials to invest with lower fees, but it also provides an opportunity to learn the ropes of finances earlier in life — before things are complicated with (hopefully) wealth, mortgages and children.

The Democratization Of Investing

It’s the first time where it doesn’t matter if you have $500 or $5M dollars.... Everyone is treated the same.”

WHICH BRINGS US TO OUR FINAL QUESTION: Can automated investing services and robo-advisers really overtake the need for humans on Wall Street?

“When I first entered the space three and a half years ago, the largest skepticism was that people would actually trust computers with their money,” Nash explains. “Which may be true for Baby Boomers who didn’t grow up with technology, but we’ve seen that young people actually trust a computer more than they would a teller at a random bank.”

And why wouldn’t we: Computers, unlike humans, have no bias. They don’t make simple math errors. And they’re available 24/7, so, we can check our investments whether we’re in line at Starbucks or bored in the middle of the night.

“But the greatest advantage is that computers aren’t emotional,” he says. “People question whether they’re able to assess risk, but, in our opinion, it’s actually they’re inability to do so that makes them so reliable. Humans often buy when stocks are hot and sell when things are down… Computers see everything by the numbers.”

The real question is why technology — algorithms that have long been used places like Facebook and Google — took so long to penetrate finance.

“These technologies have existed for decades, but it was really a matter of it being the right time for this industry,” Nash finishes. “Millennials finally started to demand the same level of service from their financial partners as they expect in their shopping — Amazon — and entertainment — Netflix.”

So, in a way, the disruption in this case is really us — a rising generation of young investors demanding a revolution on Wall Street. And how cool is that?

Interested in fintech? Check out SoFi’s pledge to lower rates on student loans.

Waiting For Disruption


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