Why giving advice has become a field where you are allowed to charge a wealth tax is beyond me. It cannot last. 1% of your wealth every year, year after year. Just imagine if the government tried that on. "We're having a 1% wealth tax to fund education and health for the very poor." And yet if you do it fund luxury property and porche consumption, that's ok somehow. No doubt there will be a bunch of people commenting here who are stupid enough to have bought the con or have a vested interest arguing that 1% wealth tax is value for money...
This creates an incentive to severely ramp up the portfolio risk in the hopes of striking it big. Sure, almost all client portfolios will go broke, but the winning one will pay off for the losers.
Such wealth management firm would have an issue surviving past year 1.
It's about them extracting some of the value they create. If you're not the most rational of decision makers, paying 1% of your wealth per year for 10 years to save you from losing 30% of it in a panic by selling at a low when the market crashes, then it's worth it. Now from that perspective think of all the people you know who may make stupid decisions like that (or just not investing in the most efficient way). The value to those people would surely be 1% per year. The question is how low can we drive the cost of those services via competition (of which robo advisors is one)?
