What is Robo-advisors?
Robo advisors are automated investment platforms that use algorithms to manage and allocate investor’s funds. These services analyse each customer’s current financial status, risk aversion, and goals. From here, they recommend the best portfolio of stocks available based on that data.
Thanks to this ease of use, robo investing or automated investing has been on the rise in recent years. The wide selection of online financial advisory services on the market today has given consumers’ options for automating their investments.
Advantages of using robo-advisors
- The services are easy to use, and it can take stress and worry away from investors.
- Some companies can offer robo-advisor services with significantly lower fees than traditional human advisors while still maintaining approximately the same return on investment.
- Robo-advisors usually automate items such as application processing. This eliminates a portion of the friction for customers and helps companies lower their labor costs, which then turns into savings for customers.
- Some robo-advisors offer auto-rebalancing, accessibility from multiple devices (smartphones, laptops, tablets, etc.), extremely low or non-existent minimum investments, and tax loss harvesting.
- Robo-advisors are suitable for investors with lower net worth and don’t have enough wealth to warrant the service of a human financial advisor.
Who can benefit from robo-advisors?
One misconception towards robo-advisors is that the system is set to replace human financial advisors. That’s not entirely true. In many cases, companies have decided to work cooperatively with robo-advisors rather than try to compete with them directly. And this strategy has many benefits.
Hybrid robo-advisor features streamline the investment management and financial advice portion of the company, which makes the entire process more efficient. This allows the human financial advisor to perform tasks that a robot cannot or should not, such as financial planning, budgeting, and event planning.
Besides financial advisors, robo-advisors can benefit other groups of people including:
- High net worth individuals
- Anyone who wishes to invest
Is robo-advising suitable for you?
Not everybody can benefit from robo-advisors. Here’s some of the disadvantages of using this service.
- While many robo-advisors now allow you to set and edit your goals using their financial planning software, you also have money-related issues and concerns which may benefit from a chat with a human financial advisor.
- Most robo-advisors will not be able to hold your hand and talk to you after a significant market drop. A financial advisor is there to assuage your fears and explain how the investment markets work.
- If you want to sell call options on an existing portfolio or buy individual stocks, most robo-advisors won’t be able to help you. There are sound investment strategies that go beyond an investing algorithm. Sophisticated and newbie investors may want a broader investment portfolio with a wider range of asset classes than the typical robo-advisor offers.
- It’s true that most robo-advisors have low price schedules, but not all. There are financial advisors who charge much lower fee than robo-advisors do for their services. There are also advisors who will charge an hourly rate, or fee for service. This practice gives the consumer a chance to control costs while receiving more personalized information. In fact, the newer ‘web-based’ personal advisors can forgo the cost of a fancy office and serve you personally via web-chat for lower fees.
- If you’re someone that wants a relationship with your financial advisor, then most robo-advisors aren’t for you. The robos don’t have an office where a client walks in and talks directly to an advisor. This type of face-to-face meeting is relegated to the traditional financial advisory models.
As with any life choices, one size does not fit all when it comes to financial advice. Investors should figure out what type of investment guidance he/she needs and select either a financial advisor or a robo-advisor would be a suitable choice to manage their finances.
At NEBA Financial Solutions, we don’t use robo-advisors to create, monitor or sell our structured products, we are 100% human friendly! That’s why we can provide you with the best Structured Notes and UCITS Funds guidance, which a robo advisor can never do!