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Digital Transformation And High-Tech Robo-Advisors - Do You Need One?

Human beings may still be the best option when it comes to financial advice

20Feb

How many times have you listened to someone else's advice when it comes to investing in stock market, whether a friend, colleague, or near stranger? Fortunes have been built and lost as a result of such guess work. and it has led to a decline in young people willing to invest.

Until recently, you had two options when it came to making investments - either hire a human financial advisor or do it yourself. Human advisors charge substantial fees, starting at a minimum 1% of value of assets to manage your portfolios. The do-it-yourself option requires lot of time and energy and you may lose money due to overtrading, panic-selling during downturns, and trying to time the market, as many individuals do who aren’t cut out to go it alone

This is where robo-advisors have scored more over humans.

A robo-advisor is an online, automated wealth management service based on data science algorithms with no or minimal human interventions that allocate, deploy and rebalance (spreading your money in stocks, mutual funds, bonds to balance risks) your investments.

The robo-advisor industry is in its infancy. Online life is migrating from persona desktop computing to laptops to tablets and finally to mobile.

Here are some of the advantages of using a robo-advisor:

  • Cheaper fees or free compared to traditional financial advisors
  • Automatic diversification into various options
  • Easy online access as we all are accustomed to shiny apps on mobile
  • Safer than picking your own stocks
  • You don’t need a degree in finance to understand the recommendations

Big data and advanced analytics can help broaden the scope of robo-advice dramatically, incorporating financial planning into broader retirement planning, tax planning, vacation savings, higher education planning.

Robo-advisors have typically targeted the millennials segment because these young investors want to save and multiply money faster and often don't have enough patience and wealth to warrant the attention and interest of a human advisor.

High net worth Individuals also believe that online and automated investment tools can positively affect their wealth manager's advice and decision-making.

Overall, robo-advisors provide a good user experience with the latest digital technologies such as slick apps and fancy interfaces. These platforms make sure that they fit right in with your daily online browsing, and are great options for novice investors who are just starting out and want to dip their toes in the world of investments, or for people with a simple financial plan who just need an affordable, straightforward place to start their retirement plans

Wealthfront & Betterment are two popular commercial fee based robo-advisors available today. In the Free category WiseBanyan and CharlesSchwab are making the ground. But it won’t be long before Amazon, Google, Facebook and Apple get in on the robo-advisor industry.

With the pace of improvement that Artificial Intelligence and machine learningarebringing in, robo-advice has the potential to become highly personalized and specific over time. Robo advice is certainly here to stay, and it has its place in the wealth management landscape of tomorrow. But what's missing most, with robo-advisers is the personal touch. In this age of hyper-personalization, the lack of a human element is one area where robo-advisors may fall short. The robo-advisor can't replace the trusted age old advisor, your elders have worked with, who lives nearby, and can rush right over in case of need, who knows you and your family.

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