In the fintech age we live in today, the term robo-advisor or robo-advisory gets thrown around a lot. So what is it actually?
It is a service that replicates the roles and functions of a bank teller and financial advisor.
Simply put, it is a service that replicates the roles and functions of a bank teller and financial advisor, all done by (you guessed it), a robot. This robot is programmed to help you manage and invest your money intelligently based on certain instructions you give it.
How these robots ‘think’ is set by turning investment strategies into executable programming.
They also take into account your personal risk profile and investment preferences. (Click here to learn more about risk profiling.) In this way, the robot knows what to do when certain situations arise, to adjust your investments accordingly, playing the role of your personal and automatic investment manager.
What then are the benefits of using a robo-advisor? Firstly, they are more accessible than a human advisor, and can be available 24/7 on demand. Traditionally with human advisors, one would have to meet them in person, fill up a bunch of forms, and wait for the instructions to get processed back in the office. Robo-advisors make that much easier by making that whole process digital and instant via the internet. They also typically require less minimum capital to get started, and have less expensive fees than traditional platforms. Some reasons that is so, is that it’s much more scalable and is less dependant on human resource. Most providers also claim that it takes the emotion and human bias factors out of investing.
One does have to consider the possible drawbacks of course, as there are always two sides to a coin. Taking the human out of the picture also means you lose the benefit of meeting a real-life person. If you’re new to investing, you might need someone with experience to guide you in discovering your investment priorities, preferences and risk appetite. They could be able to relate better to certain things that a robot might not be able to discern, like changing family situations or life transitions. Financial planning needs to be thoughtful and factor in these things and we just might need that extra adaptive fine-tuning. (Click here if you would like to connect to some great advisors that we know!)
We hope you learned something new today. Do share with us your thoughts and comments. Excited to explore robo-advisory? Join us in our upcoming article where we give you some tips on how to choose a robo-advisor.