This may be a dumb question; but as I am looking for my next project, what is so hard about setting up a robo-adviser firm?
Algorithm A : put $AGE % of funds into treasury bonds, put 85-$AGE % into index firm / ETF
Algorithm B: err?
Algorithm A : put $AGE % of funds into treasury bonds, put 85-$AGE % into index firm / ETF
Algorithm B: err?
Robo-advisers are subject to the same regulation as traditional asset managers - a regulatory burden which is only likely to increase over time. The legal fees associated with regulation are not cheap.
Compounding the problem, a competitive robo-adviser needs to offer lower fees than a traditional asset manager. Probably they need to be in the 0.25-0.5% range, which means that for each $1m under management they are picking up $5,000 of revenue. Out of that they need to pay salaries, infrastructure costs, legal costs, rent, taxes etc. Let's be conservative and say that these costs are $2.5m per year. That means that a robo-advisor needs about $0.5bn under management before it begins to turn a profit.
I don't think it's really suitable as a side project.
So holding assets under management is less the issue than arranging purchase on behalf of clients.
Either way the cost issue dominates.
Anyone can sit at a screen and pick stocks all day, and I'd guess most of people of average intelligence would do better than the markets given a few simple strategies - because most brokers seem happy to make more money from fees than from investment gains.
But not many people want to do this. If you start selling a maintenance-free money machine, it's not going to be hard to get sales.
Of course if enough people start using it, it stops working. But that's a different problem.