Robo-advisors are automated advisory platforms that are bringing financial advice to the masses.
These digital platforms offer customised investment advice online and look set to be the future of investment advisory.
Why are robo-advisors replacing your traditional private banks and financial advisors?
For one, it’s a bottom-line issue. Using robo-advisors are much cheaper compared to hiring a relationship manager(RM), and it also cuts the cost of customer acquisition since RMs typically spend on wine and dine on their customers.
With robo-advisors, the cost will be severely reduced and expenses will continue to decrease with the depreciation of the software.On the other hand, customers will enjoy lower fees when it comes to investments.
According to Infinity Partners, a high-end financial advisory group here which is planning to launch the technology in Singapore, customers are charged about 1 percent of assets compared to an average of 3 to 5 percent by private banks.
Using an asset amount of $100,000, that’s a saving of $2,000 to $4,000!
With Asia’s high internet penetration rate and growing wealth, you can be sure robo-advisors will be here to stay.
Should You Use A Robo-Advisor?
Wealth Advisory For The Masses
There are some obvious advantage to using robo-advisors. Firstly, it makes financial advisory a more accessible service to the common folks. You no longer need to be a high net-worth customer in order to get a customised service.
This would definitely appeal to those of us who are middle-class folks and have some money on hand, yet aren’t sure what to do with the spare cash we have in out bank accounts.
Secondly, using robo-advisor means you can get financial advice whenever you want.
For some of us who have little time to spare from our busy lives, an online platform means we can choose to manage our finances even after working hours or over the weekend.
Lower Barrier Of Entry
Robo-advisors and online investment platform also provide a lower barrier of entry for those who wants to invest. For instance, a local startup called Smartly, aims to get you investing from at low as $50!
This is unlike traditional security companies which may require you to put in a fixed amount of deposit before you can start investing or trading.
Fee structures provided by robo-advisors are also transparent, unlike traditional funds where you don’t know the exact amount of fees you are paying since most of them are taken from the capital you’ve put up.
For those of us who do not like to deal with up-selling and cross-selling, robo-advisors work great because you can tweak the recommendations to suit you and not deal with someone’s nagging and persuasion.Robo-advisory platforms are definitely in its infantry here, but we can already foresee the sophistication of the industry and the growth of future product offerings.
For now, we’ve seen some that recommend exchange-traded funds based on your risk tolerance after the answering of a few questions and others focusing on providing the technology behind such wealth advisory platforms.
On the other hand, some may argue that using a set category to service clients with individual needs may not be personalised enough, and would still prefer to go the traditional route of having a human face for the service.
Well, all we can say is that robo-advisors are probably here to stay, but we can’t be sure if the “performance” will be better or worse than a human financial advisor.
All that can be guaranteed is that you will be paying lower fees with a 24-hour accessibility. So which do you choose?