The term robo-advisors denotes to machinery, which utilizes pre-set algorithms to analyze a consumer’s financial abilities and the kind of risks they might be exposed to. After this initial analysis and based on the information acquired, the robo-advisors suggest pre-defined and low-cost exchange-traded funds to the consumer. To explicate, robo-advisors provide basic wealth management services on a minuscule level to small investors at a nominal rate. Recent progress in the fields of artificial intelligence and machine learning has led to the development of automated robots that can perform certain complex repetitive activities that are susceptible to human error. The major reason why the robo-advisors are gradually getting adopted by financial and wealth management sectors is their ability to perform and deliver financial advisory services at a lower price. The important yet simple tasks that they accomplish for a financial company include management of client account, tax-loss harvesting, and rebalancing.
Robo-advisory offers transparent and efficient financial advice at low prices
The robo-advisors are digitized wealth management systems and the growing adoption of the technology is driving the global robo-advisory market. Corruption, in some slight form or the other, is extremely prevalent in the financial and banking sector. Financial advisors can often not be trusted entirely as they might be susceptible to fraudulent and unethical methods of earning incentives. The advent of robo-advisories eliminates such risks. This transparent and unbiased method of operation is much sought out in developing countries where people are unable to afford wealth advisors to manage their finances. Ineffective management can lead to further loss of finances, which is why robo-advisors are favorable among average income groups.
According to market research, robo-advisors can be largely classified under two major groups – fully automated and hybrid. The fully automated robo-advisors provide private but limited services to the clients whereas, hybrid robo-advisors provide automated services mixed with the interpretations of the human financial advisors. These factors have raised the potential for robo-advisory market growth.
Robo-advisory creates a safe, secure and private platform for small investors
The fate of the human financial advisors will not be affected by robo-advisors any time soon. The manner in which financial advice is delivered to the customer might change but at the end of the day, personal interaction will always remain indispensable for investors with considerable assets under management. Certain aspects of the client-advisor relationship can only be performed through human instinct and knowledge, such as combining and creating financial plans and policies specific to the needs of the client or providing adequate financial backing to investors through economic fluctuations. These aspects will remain under the territory of a financial advisor. In fact, robo-advisors and financial advisors are expected to complement and coordinate to serve more clients efficiently. In many cases, robo-advisors can save financial advisors a lot of time and effort so that they can lend their expertise and focus to more complex issues.
Robo-advisory has empowered people to independently manage their wealth on the basis of pure algorithms. An increasing number of small investors are now adopting robo-advisors to assess the development of their financial profile as they can be availed at nominal prices and they offer lucrative returns. A futuristic perception of the robo-advisory technology will become imperative for many wealth management firms if they wish to inculcate it in their business. Market strategies that complement and earn the trust of clients are predicted to be the key drivers of the global robo-advisory market.