One of the more notable developments in the financial advisory market in the past decade is the rise of robo-advisors. But what are they, exactly?
Investopedia describes robo advisors as platforms that deliver an automated financial planning service driven by algorithms. Largely free from the overheads paid by more traditional financial advisory firms, robo advisory firms have been able to offer lower fees. On top of that, they require a comparatively low account opening balance, making them accessible and attractive to nearly everyone, particularly to younger investors. However, while they are increasing in popularity, they do have their limitations.
Easy to set up – Opening an account with a robo advisor is straightforward – it involves answering questions about personal details and your investment goals. Depending on the information you give, the algorithms will then determine the investment strategies that best fit your needs.
Financial management – As time goes on, the robo advisor will continue to manage your investment portfolio, adjusting it as your financial goals change with time.
Customer service – Many robo advisors do have human beings behind the scenes that you can chat to – and for an additional cost, can also offer professional advice.
Lack of customisation – While the simplicity of automated portfolio selection is attractive to those not well versed in financial planning or have little to invest, they can be frustrating if you’re an investor that wants to customise your portfolio the way you want it. If you manage your investments yourself, a robo advice platform won’t be for you.
Lack of detail – However sophisticated the questionnaire may be, the information gathered by a digital platform can never produce as in-depth a picture of your financial needs than a face-to-face conversation with a professional financial advisor. Rigorous profiling driven by financial advisor software such as https://www.intelliflo.com/financial-adviser-software coupled with the professional expertise of a qualified advisor can home in on details that no robo advisor can detect.
Robo advice has found its place in the financial advisory market, and for individuals with straightforward financial needs, its low cost and simplified investing process is ideal. However, once your financial situation becomes more complex, it’s worth considering professional financial advice.
Established advisory firms have realised the potential for automated advice, and now offer robo advice alongside their more traditional practice.