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Digital Transformation and high-tech Robo-Advisor – do you need one?

Sandeep Raut, Raut | Feb 13, 2017 244 views 1 Comment

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How many times you have listened to the advice of your friend/colleague or someone you know, to invest in stock market? Many people have gained and lost their fortune with this guess work and now younger generation is more scared to hand over their hard earned money to someone for investing.



Until recently, you had 2 options for investments – either hire a human financial advisor or do it yourself. Human advisors charge substantial fees starting minimum 1% of value of assets to manage your portfolios. Do it yourself option requires lot of time and energy and you may lose your money due to result of overtrading, panic-selling during downturns, and trying to time the market as the issue for many individuals is they 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 millennials segment because these young investors want to save & multiple money faster and often don’t have enough patience & wealth to warrant the attention and interest of a human advisor.

High Net worth Individuals also think, 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 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 & CharlesSchwab are making the ground.

But it won’t be long before Amazon, Google, Facebook and Apple get in on the robo-advisor industry.

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 a trusted age old adviser, your elders have worked with, who lives nearby and can rush right over in case of need, who knows you and your family.

With the pace of improvement that Artificial Intelligence and machine learning bringing up, robo-advice has the potential to become highly personalized and specific over time.

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One Response to Digital Transformation and high-tech Robo-Advisor – do you need one?

  1. Michael Lowenstein February 14, 2017 at 5:50 am (1326 comments) #

    Agreed that robo-advisors have become an increasing presence in the investment community, especially among younger consumers, with companies like Wealthfront (fee-based) and Charles Schwab (fee-free) getting a lot of attention. For more mainstream investment firms (like TD Ameritrade, for example) and their human advisor corps, the challenge will be to balance the emotional surety of individualized and personalized guidance with the flexibility, speed, convenience, and depth offered by digital techniques.

    This is a significant, and rapidly evolving, issue in personal financial services. Another facet of digital transformation – for retail banks – was addressed in one of my posts last year: http://customerthink.com/digital-transformation-in-retail-banks-potential-impact-on-brand-equity-customers-and-employees/

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