RENEE MONTAGNE, HOST:
We've been reporting lately on what's become the top financial concern for Americans, saving for retirement. More than half of working people have saved less than $25,000. As part of our series, Your Money and Your Life, NPR's Uri Berliner looks at how some young investors have turned to robo-advisers for help.
URI BERLINER, BYLINE: Jesus Adrian Perez is 29, lives in Albuquerque, N.M., and works as a biometric analyst. He's the first one in his family to graduate from college, and he told me he wants to climb from the working-class to the investment class.
JESUS ADRIAN PEREZ: Out of all my whole family, I have the most income. And my parents and my brothers and sisters sometimes do look for me for that, you know. I mean, they need money. Not only do I have to worry about, like, my retirement, but I have to worry about my parents' retirement and my brother and sister, too.
BERLINER: Perez is a math and statistics guy who knows what's at stake when lots of charges are tacked on to investments.
PEREZ: I hear about investment advisers. Their fees are always really high, and you end up losing a lot of money in the long run.
BERLINER: So he signed up with a robo-adviser called WiseBanyan. It's an online financial manager that builds you a portfolio of low-fee funds based on the customer's age, goals and tolerance for risk. All these decisions, they're made by an algorithm, not a broker.
Do you feel strange having a robot managing your investments instead of a human being?
PEREZ: No, no, I always think robots are better at everything than a human being can do. You know what I mean? They're going to be better at driving cars, identifying diseases. Human error is - human error is a big thing, and they're not greedy.
BERLINER: Robo-advisers are significantly less expensive than human ones. The startup WiseBanyan is free. Fees at the largest robo-advisers are a small fraction of those at Wall Street firms and traditional wealth managers.
GREG SMITH: People don't realize that the public are being used as pawns in this game where billions of dollars are being extracted out of their pockets. And, you know, 401(k)s are a great example.
BERLINER: That's Greg Smith, president of a robo-adviser called Blooom that manages 401(k)s for customers. Smith is a former Goldman Sachs banker with an interesting back story. We'll get to that in a moment. But when it comes to 401(k)s, he says they're needlessly opaque, crammed with high-fee funds that perform poorly.
SMITH: The average American household can pay $150,000 in fees into their 401(k)s over the lifetime of their retirement account.
BERLINER: The Blooom algorithm hunts for the lowest cost options in a customer's plan. Typically, those are passive index funds. Passive funds automatically mirror a market index. They don't have highly paid managers. They don't try to beat the market.
SMITH: After dealing with some of the smartest investors in the world for 11 years, I can conclusively say that I did not see any of them routinely beat the market.
BERLINER: In 2012, Smith quit Goldman Sachs and slammed the company in The New York Times. He said Goldman's culture had become warped, and it was taking advantage of clients. According to Goldman, Smith left because he wanted more than a million dollars in salary, about double what he was earning. Now Smith works for a lot less - he calls it a startup salary - from a co-working space in midtown Manhattan. He says it's exciting. Robo- advisers like Blooom are at the birth of something big.
SMITH: We think the whole industry is basically stuck in the 1970s. And finance and retirement might be one of the last bastions for the consumer that technology has not really helped at all.
BERLINER: Now, this seems like the inevitable moment to say that these robo-advisers will disrupt financial planning. But there's no sign of that happening yet.
SEAN MCDERMOTT: By comparison to the established players, it's a very small amount of money we're talking about.
BERLINER: Sean McDermott is with the research firm Corporate Insight. He says the thing to watch is this. The use of robo-advisers is trickling up from millennials to older generations.
MCDERMOTT: Their parents turn to them to ask for advice about the newest and latest technology that's out there. We don't think it's too large of a leap to say that they've been steering some of their parents into these services.
BERLINER: At last count, he says the leading robo-advisers were giving advice on $21 billion in investor assets. And they're growing quickly. Though, to get some perspective, the mutual fund giant Fidelity by itself manages more than $2 trillion. Human, with all their flaws, still rule financial planning. The robots have their work cut out for them. Uri Berliner, NPR News.
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