The Increasing Popularity of Robo-Advisors and Their Potential to Disrupt the Investment Industry
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The Increasing Popularity of Robo-Advisors and Their Potential to Disrupt the Investment Industry

People no longer fear retirement all thanks to advances in technology that make it easy for them to invest. Technologies like artificial intelligence have changed the retirement narrative. Advanced technology has made it possible to use improved digital tools to provide solutions to people’s problems. As a result, people can invest and save and also prepare for their retirement better. This is because the return on investment they would get by using technology would increase. One such technology is the use of robo-advisors, an AI-powered device. It is now common to see many financial institutions use robo-advisors to manage clients’ investments.

What are robo-advisors?

Robo-advisors or Robos are software applications that are created using AI. A robo-advisor uses an algorithm to carry out several investment operations given to it by a human advisor.

Robos were initially developed by start-up firms. But they have become useful in other sectors too. Fintech firms use Robos to offer all forms of financial services to their clients.

Furthermore, robo-advisors gather data given by clients to make informed investment decisions. These apps are automated to manage clients’ investments with the information given. However, many people question the competency of robo-advisors.

What does a robo do?

A robo finds solutions to difficult financial issues an organization or individual is facing. This includes retirement and investment plans and how an investment will help a retired individual. But the problem is that not many know what a robo-advisor is. Neither do they know the operation and effectiveness of the apps.

Price and accessibility

An advantage of using a robo app is its affordability because it is cheaper than using human advisors. Consequently, this makes robo-advisors more accessible to many users. Similarly, Robos can attend to as many clients as possible, even clients with small funds. This is because taking on an additional client doesn’t make much difference cost-wise.

Registration on a robo app

To sign up on a robo app, you need a mobile device or computer, and an internet connection. Simply choose the investment firm whose services you want. Ensure it has a robo-advisor app. Then go to the firm’s website, and look for the robo app. The firm will ask you to fill out an online form asking you questions about your investment timeframe, investment purpose, and risk tolerance. This information will help the robo use an algorithm to determine ways to allocate assets to suit your financial needs.

What happens after account registration?

The advisor will build and oversee an investment portfolio for the client. Afterward, it will make trades, rebalance clients’ portfolios, harvest loss on taxes, and so on.

Experts’ opinions on robos

According to financial analysts, many retail investors like robo-advisors. The reason is that it helps them properly oversee their finances and look after their portfolios.

The analysts further stated that investors are looking for investment managers to work for them. They hate the stress of investing and sometimes don’t welcome investment advice. Hence, the development of robo-advisors is the perfect answer to this dilemma.

Advantages of a robo-advisor

  • Price: Using robos is cheaper than using human advisors. They give automated services with zero charges to 0.89 percent. Investors with less than one million dollar assets will pay up to 0.89 percent of the assets. However, if an investor has less than 10,000 dollars, robo won’t charge the investor. But in most cases, the service fee for using Robo is normally between 0.25 – 0.30 percent.
  • Automated: Robos are automated applications built to efficiently perform operations for clients. Conflicts of interest are never an issue when you use a robo. Whereas this often happens when clients use human advisors. This is because human advisors mostly pressure clients to do investments that will give the advisors good commissions. These investments might not necessarily favor the clients, yet, the advisors tell them to invest just to get commissions.
  • Performance: As stated earlier, robos are devoid of human emotions. They mostly rely on facts and data. So there is no emotion to interfere with robos’ work. 

Disadvantage

  • Market uncertainty: Unfortunately, it isn’t yet certain how robos will perform if the market crashes. This is the downside of using a robo.

ConclusionLastly, even though robo-advisors were developed years ago, they only became popular recently. Nowadays, you can find more than ten robo-advisors available online. Some Robos only use AI to give financial advice, while some use human advisors as well as AI. For robos that offer AI and human advisors, it will ask the client to choose. It is up to the client to choose either to help him with his investing options. Such types of Robo may charge extra for speaking to a human advisor or give the service for free.

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