What is a Robo-Advisor?
A Robo-Adviser is a digital platform offering automated, algorithm-driven financial planning services with minimal human intervention. Typically, users answer questions online, and the robo-adviser uses the data to offer investment advice and/or manage a portfolio.
Robo-Advisors have gained popularity due to their accessibility and affordability. By using advanced algorithms, they analyse market data and adjust portfolios in real-time. While they lack the personal touch of human advisers, some feel their efficiency makes them an attractive option for many.
In the following sections of this short article, we cover:
- Whether you should use a Robo-Advisor
- The benefits of using these services
- A summary of the drawbacks and disadvantages
- Whether Robo-Advisors are here to stay
Let’s continue with this article
Should I use a Robo-Advisor?
Many ask whether using a Robo-Advisor is the right choice with many financial advisors worried that they could be out of a job within 5 years if developments in artificial intelligence take off. I guess the question people may ask themselves is, ‘Do I need a financial adviser?’
One scenario would be that you log in on your phone or tablet to a Robo-Advice portal and answer some questions. Name, address, date of birth. How many kids you have, their ages, your mortgage, savings, investments and pension plans. Your financial priorities, goals and aspirations. You complete a risk questionnaire. Then you press “submit” and wait.
Out come your results and the advice you’ve been waiting for. “Do this, do that, pay off this and invest in that. And stop spending so much money on eating out!” As an added benefit, you might save money on fees, as your Robo-Adviser would be super-cheap! And if you acted on your Robot’s advice today, you might even qualify for a Parker pen!
Advantages of using a Robo-Advisor
Speaking at a technology convention in London this month, the director of innovation of a major technology provider said, “Robo-Advice is the future and this technology could see financial advisers being made redundant. The reality is that you don’t need to interact with a real person. A robot could do it all for you at a fraction of the cost.
Cognitive computing is a form of software that mimics the human brain and is able to weigh up problems which don’t necessarily have a right or wrong answer. This form of computing is already being developed by IMB, Google and Facebook.”
Disadvantages of using a Robo-Advisor
Fascinating stuff. However, Becky Guy, a financial advisor in Stevenage, Hertfotrdshire, counters, “Whilst there may be an appetite for DIY financial transactions in the UK, my experience from working in Kent tells me that ordinary people would prefer the advice of an expert, that expert being a real person. Making complex financial decisions can be an emotional experience and having a trusted and experienced adviser with you who can answer your questions, listen, empathise and relate to your financial problem is invaluable.”
She continues, “Most people could, if they wanted, go online and complete their tax return on their own. But they don’t. They use an accountant. Writing a Will, using another example, should be quite easy. But getting it wrong could be costly. So people go to a Solicitor. I think the Moneysupermarket generation may use Robo-Advice for some of the simpler, lower value financial transactions, like buying car insurance. But it could be the robots facing redundancy as people’s finances grow and become more complex.”
Are Robo-Advisors here to stay?
There’s a lot of exciting new technology coming along and Robo-Advice is no exception. Robo-Advice has been here a while but doesn’t appear to have taken off as originally predicted. Many clients say that the most valuable part of the relationship between client and adviser is the relationship itself.
In addition, people sometimes need to be persuaded to buy certain financial products, like life insurance, critical illness cover and income protection. Or convinced to pay more into their pension, by helping them to visualise their retirement. You won’t get that from a robot. What you won’t get either is the rapport and sometimes friendship that develops between a client and their adviser.
So am I worried about being replaced by a robot? Of course I am! Robo-Advice is here to stay and make investing easy, accessible and cheap. My firm is actively exploring Robo-Advice and investigating to see if it could work alongside our team of independent financial advisers.
In the end, real person advisers may have to raise their game in order to compete with the new army of shiny robots. Competition as they say, is always a good thing. Bring it on!
