Can Robots Manage Your Money Better Than You? Startups Say Yes

· Dec. 30, 2013, 8:22 am

Millions of people are turning their thoughts to self-improvement and New Year’s resolutions this week. And one of the most common resolutions, after promises to lose weight or get in better shape, is to be better about money.

A handful of entrepreneurs in the Bay Area have taken note — and they believe the time has come for you to try a different way of managing your money.

Mike Sha’s dream is that one day, you will turn your investments over to a robot. “A smart robot,” stresses Sha, who’s behind the San Francisco-based startup SigFig.

We’re not talking C-3PO here. What we’re really talking about is algorithms. SigFig has built a website that will manage your portfolio for you automatically. The site searches out the lowest-fee funds. It makes sure you invest in a diversified portfolio. It matches the risk of your investments to your age, to when you want to retire and to your personal financial goals.

And then it automatically rebalances your investments to fit that plan over time.

In short, Sha says, it does pretty much everything a human financial adviser could do.

But What’s Wrong With Human Advisers?

“Unfortunately, humans are expensive,” Sha says. “They can be prone to bias, based on how they get paid or how much they get paid.”

Many personal financial advisers are paid more depending on the stocks or investments you, the client, buy. Conflicts of interest riddle the industry. And there are other problems with humans, too.

“They don’t scale well, so a person who is trying to manage money for a couple hundred people, they can’t look at everyone’s account all the time,” Sha says. “So … if you could replace that human with a machine — which has been done in a lot of other industries to great success — you really can build a better, more scalable, lower-cost solution.”

SigFig charges a flat fee of $10 a month, not a percentage of the money it manages or a new fee for each transaction.

And Sha isn’t the only entrepreneur pursuing this dream; Betterment and Wealthfront do the same thing. And the tiny little startup Wallet.AI wants to take it a step further.

When Wallet.AI’s Omar Green and Boris Fedorov look at someone’s finances, they start with a simple question: “By living the way you are living, are you adding to your net worth every day or are you subtracting from it? Are you becoming more cash-flow positive, or less?” Fedorov says.

Wallet.AI is trying to build a product that will monitor each and every one of your transactions, then send you text messages if you start to stray from the virtuous path.

For example, in October, one user started using the ride-sharing service Uber instead of taxi cabs. Now, catching a ride in an Uber town car is nice, but it can cost a fair bit more.

“Based on that insight, we were able to determine that they could have saved over $200 if, for every Uber trip that they took, they took a cab [instead],” Fedorov says.

So they sent a text message to that user with a heads up. “And it’s not that we have any kind of vendetta against Uber,” Fedorov says. But the data doesn’t lie — and now that Uber addict is using Uber about half as much and saving about $100 a month.

No human financial adviser would ever have the time to do something like that, but for a well-programmed computer, this kind of tedious work is easy.

The Human Element

So, is there anything a human financial adviser can do that a bot cannot?

Carl Richards, a financial adviser himself and author of The Behavior Gap, a book about why people do stupid things with money, says a human might be able to save you from yourself.

“I think a lot of the services that are popping up are doing an amazing job with all of those things that can fit into an algorithm,” Richards says. “The dilemma I have is what’s going to happen when somebody wants to do something stupid. And the easy example would be … selling out of the market when the market goes down.

“To me, it’s the one spot where having somebody on the other end of the phone that knows you — your family, your values, your goals — to walk you in off that ledge may be irreplaceable,” he says.

While Richards says a well-programmed robot would certainly advise its clients not to sell in a financial panic, he thinks many panicky people will be sorely tempted to simply turn those machines off in a severe downturn and sell.

Still, Richards admits that bots offering automated financial management are already lowering the price for fairly sophisticated financial advice. And in the process, they’re making it more affordable to the masses.

So who knows? Maybe the time has come to embrace the Robot Age — although, perhaps it’s best to keep 2001‘s HAL in mind as our money moves into the digital future.

Copyright 2013 NPR. To see more, visit

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