There is perhaps a fear that permeates through all industries, of a robotic takeover of jobs ultimately replacing humans. So, within the financial services industry, are Robo-advisors on the path to take over or can they work fluidly with us humans to provide an improved more ‘all-rounded’ approach?
Firstly, the term Robo-advisor conjures up connotations of robocop like machines whose purpose is to replace humans within financial advice.
However, to describe them as a money management platform, because it is essentially what it is, would be more apt and perhaps less worrisome.
These platforms began 15 to 20 years ago, and although their functionality was perhaps less sophisticated than they are now, it wasn’t until the last decade or so that the industry showed impressive and real signs of growth and adoption.
What can Robo-advisors do?
Robo-advisors can allocate assets, complete automated rebalancing and manage tax-loss harvesting. They can open the avenue of financial advice to a wider audience, there are fewer qualifiers needed to use one and also the minimum to invest is much lower than that of using a human financial advisor, where some have a threshold of £500 and some don’t have any at all.
So, for those with a lower level to invest and aren’t sure where to start Robo-advice is probably a great option and a means of ‘getting your foot in the door’ to beginning and understanding investing.
However, there are of course aspects of financial advice where a robot just doesn’t make the cut.
If you have a six to seven-figure net worth, then a Robo-advisor is likely to be limited in catering for your needs. A financial advisor can help advise you on all your assets, such as your estate, tax, insurance and any trusts and offer advice across the broader range of your financial concerns.
Some companies offer both Robo-advisors and human advisors, considering that the Robo advice is more of a management platform, using the platform and AI in conjunction with human interaction allows a more hands-on approach for the advisor on issues that require more in-depth conversations and as discussed above, Robo advice can remove the cumbersome tasks involved with finical advice.
If you also want to access a wide and broad range of funds, then a human approach is likely to be more apt for your needs. Most Robo-advisors don’t have access to more than a few funds.
For those starting out and keen to begin investing, the Robo-advisor is a great way in to learn and understand the market and funds without the requirement of 0.25% to 1.0% of assets under management before securing an advisor.
Even the simultaneous use of both robots and humans for those with higher investment figures seems beneficial for the removal of the menial tasks.
However, the use of the word Robo-advisor probably removes the legitimacy of the work done by real humans in financial advice.