Robinhood’s recent AI acquisitions show the company is betting big on further leveraging technology to deliver financial advice to the masses, but many wealth management clients still prefer advice and guidance from investment professionals.
The rise of fintech companies such as Robinhood, Webull, and TradeStation made personal finance tools available to the masses, and they have grown in popularity during the pandemic and the ensuing bull market. On July 2, 2024, Robinhood announced the acquisition of Pluto Capital Inc., an AI-powered investment research platform. Robinhood appears to have doubled down on its promise to democratize personal finance by providing retail investors with highly personalized investment strategies and real-time analytics. This trend is likely to continue as more fintech companies try to stay competitive. However, despite the push from Robinhood and others, surveys show that customers still value expert advice.
The strategic rationale for democratization
As AI enters the personal finance industry, retail investors will have more capabilities than ever before, as platforms like Pluto can analyze vast amounts of data in real time and quickly provide investors with previously unavailable insights. Pluto Capital’s strength lies in advanced data analytics, powered by cutting-edge Large Language Models (LLMs). These models allow us to efficiently process and interpret vast amounts of market data, providing real-time access to personal and global financial information. Such capabilities allow us to identify market trends and investment opportunities more quickly, a key advantage in the fast-changing world of personal investing. Instant access to investment information further closes the gap between the resources available to investment professionals and retail investors.
Pluto (and now Robinhood) offers the ability to customize investment strategies to individual customer profiles, a feature typically available only to financial professionals. The platform achieves this by analyzing factors such as risk tolerance, investment goals, and past customer behavior. Historically, advanced investment tools and personalized advice have been the domain of the wealthiest investors and their advisors. The Robinhood acquisition aims to democratize this process by giving users access to these professional-grade tools.
Market Trends and Forces
Retail investors are increasingly looking for personalized investment advice tailored to their unique financial goals and risk tolerance. The integration of AI into financial services is driven by the need for more efficient data processing and personalized customer experiences. This trend is expected to continue, with more financial institutions adopting AI to stay competitive.
But it’s important to note that the market forces behind the popularity and boom of these highly personalized financial apps are shifting. Transactions cost next to nothing, and the beauty, ease and speed of the apps can make “investing look so easy.” To tell [TG(1] Forbes. In the years leading up to the pandemic, the stock market has soared, with millennials in particular taking advantage of the ease of investing at a time when interest rates were still low and stocks were rising along with bonds. For some, the app may be a good choice, but there are reasons to be wary of a platform that, as Forbes adds, “treats the markets almost like a game.”
This is especially important because the market forces that drove the fintech giants to new heights have shifted dramatically. Interest rates have increased significantly and are staying elevated, the dispersion of market returns has increased, and overall prices have become more volatile. Achieving the same returns in 2024 may be harder than it was in 2020. So those who have been doing well on their own through self-investing apps may want to rethink their strategies as the market moves into more volatile and risky territory.
Customers still want face-to-face interaction
Despite advances in technology and the expansion of platforms like Robinhood, recent surveys show that many investors still value human interaction when it comes to financial advice. Q2 2024 [TG(2] According to a quarterly market perception survey conducted by life insurance and financial planning giant Allianz, 54% of Americans who work with a financial professional say they would like to meet with them more frequently than they currently do. This sentiment is especially strong among millennials, the same generation that has spurred the growth of self-investing fintech apps like Robinhood, with nearly 71% saying they would like more frequent meetings.
The investment surge of the past few years has perhaps produced a positive side effect, with the number of Americans who would rather hold onto cash than endure market volatility dropping from 62% in Q2 2023 to 56% in Q2 2024. Additionally, the number of Americans who say they are too anxious to invest in the market right now also dropped from 45% in Q2 2023 to 37% in Q2 2024. People are feeling more comfortable investing and are willing to put their assets at risk rather than keeping them in a bank.
Allianz’s survey results highlight an important trend: while technology provides valuable tools and insights, many investors still want the reassurance and personalized advice that comes from interacting with a qualified investment professional.
The way forward
AI integration will not shy away from even the most experienced advisors, but rather will help enhance both advisory businesses and individual investing. Robinhood’s acquisition of Pluto Capital is an important step in the democratization of finance, but a holistic approach to investing may be more nuanced than what an app can offer. As markets become more dynamic and investors’ appetite for more complex asset classes grows, the value of expert financial advice may also increase. However, advisors may need to shift their engagement strategies to compete with next-generation technology. The persistent desire for expert interaction, as highlighted by the Allianz results, highlights the importance of balancing technological advancements with human touchpoints. For advisors and RIAs, however, AI integration will mark a critical inflection point in the investment and wealth management industry. As the fintech sector continues to evolve, the most successful platforms and advisors will be those that can seamlessly integrate cutting-edge technology with the personalized service investors need.
[TG(1]https://www.forbes.com/advisor/investing/robinhood-review/#:~:text=Robinhood has become one of,markets almost like a game.
[TG(2]https://www.allianzlife.com/about/newsroom/2024-Press-Releases/Americans-Less-Fearful-About-a-Recession-and-Investing
