“Robo-Advisors” are a form of a digital financial advisor that offers AI-driven investment services powered by advanced mathematical algorithms to help manage your investment portfolio. Financial and wealth management firms are increasingly turning to technology to service clients via software products, one of which being robo-advisors.
Robo-advisors use algorithms and machine learning to provide financial advice with minimal human intervention. Using their algorithms, client portfolios are managed in the most efficient way possible.
Some robo-advisors employed by firms are entirely automated, while others combine human assistance to dole out advice. Most act as a model of customer service to assist clients through the investment process and there-by allowing wealth managers to focus on more high-profile clients or work that requires greater scrutiny.
As the technology behind robo-advisors improves, financial advisory firms can look forward to enjoying the following benefits automation has allowed:
Lower Costs
Employing face-to-face advisors comes at a cost. The use of robo-advisors can lower costs for a firm and this makes investing more accessible, thus expanding the client base to new and intermediate investors, who might otherwise be averse to paying human financial planners their usual 1-2% commission. The elimination of human labor, lower overheads, and little-to-no minimum investments required significantly reduce the rates and fees for robo-advisors.
Hands-Off Approach
As often as every day, based on their goals and current financial situation, a robo-advisor can be programmed to tweak and re-balance a client’s assets to build the optimum investment portfolio. Human intervention can be limited to adjusting settings based on market moves and reaching out for support only when required. The minimal intervention works for the investor, too, allowing the client to buy and hold without having to check in often.
Degree of Risk Aversion
Most robo-advisors are programmed to create a relatively low-risk portfolio for clients. While there may be some variation among robo-advisors in terms of the kinds of investments they make, most robo-advisors target market-indexed ETFs and reputable stocks, which follow the performance of major indexes like the S&P 500. The technology has not reached the level of intuition needed to analyze and pick the next Amazon or Facebook.
Digital Competitive Edge
Robo-advisors add value and convenience by offering clients on-demand assistance beyond trading hours through mobile or web apps. The availability of such accessible and tech-savvy solutions gives a firm the competitive advantage to convince clients to switch their wealth management providers. Offerings like robo-advisors strengthen customer retention and automate the process of on-boarding new customers too.
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