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Automated Advice Encourages Savings, Wealthfront Says

Individuals actively engaged with Wealthfront’s financial planning tool over the last 12 months saved nearly 24 percent of their income before taxes.

Individuals using an automated financial planning tool tend to save more for retirement, according to an analysis by robo advisor Wealthfront.

The company recently released an analysis showing that users who were regularly engaged with Path, its automated financial planning engine, saw an increase in their savings rate from 18.6 percent to 23.7 percent. That translates to an additional $1.25 million in retirement savings for a 32-year-old with $130,000 in income and $100,000 in savings, Wealthfront claims.

Industry observers have long argued that robo advisors could commoditize investment management, but that goals-based advice was one part of the human advisor’s job that would not be automated. Then Wealthfront introduced Path in February 2017, an indication that the robos could encroach on that too. Wealthmanagement.com recently wrote about how the company is designing that software.

“Forcing good behavior is a promising start, but we believe automation offers an even more promising solution because it’s more than just autopilot,” writes Co-Founders Andy Rachleff and Dan Carroll, on the company’s blog. “It provides a level of timeliness and personalization that defaults can’t. In short, automation empowers people to choose good financial behavior.”

The report found that the more a user engages with Path, the more they save. Those who interacted with the tool every month over the last 12 months saved nearly 24 percent of their income before taxes, compared to about 19 percent saved for those who had no interaction over that time.

Path, which has been continually updated with new features to address client requests, such as saving for a house, or how their financial picture would be impacted by taking extended time off from work, among others combines account aggregation provided by Quovo with a planning engine built completely in-house.

“Our observations show technology is the solution needed to help people save more,” Rachleff said.

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