Roboadvisors, why are they so trendy?

Financial Education by Community Manager - No comments

Roboadviser, roboadvisor or just robos: the word is broadly known in the last three or four years, when it has become a new financial solution. Now, we have a large list of them, as Gear Investments in UK.

Why do they appear? The technological evolution has produced more complex algorithms, that allow creating automatic models for several fields. One of them is finances. This models work with a very low human intervention. There is a traditional model where the financial adviser communicates with his customers and organise plans for their goals. The current roboadvisor model creates independent people with their finances.

The competition is on: roboadvisors offer standardised portfolios depending the individual risk profile with lower fees than traditional advisers. Does it mean that there is a fight to destroy one of both? Absolutely not. Both models can live together, because roboadvisors have appeared to cover a target with low savings but interested in looking for alternatives for their money. This group was excluded from traditional advisers, because they were not profitable for them. Roboadvisors are an alternative in the financial landscape, providing a new way to invest. People can invest by themselves, through financial advisers or banks. Roboadvisors come to complete the choices.

The business has just begun: an AT Kearney report mentioned that the asset under management managed by roboadvisors would reach $2.2 trillion in 2020. Currently, the largest roboadvisors manage more than $3 billion.

Automatic, cheap and easy to use are typical positive pitchs exposed by roboadvisors. Other positive arguments are that they connect better with the current digitally native generation and that people feel more a control of their investments. On the other hand, the negative points exposed are that there is no personal treatment, the risk profiling does not work as it should and that they will show their weaknesses in bearish markets.

The negative reasons can be argued by the reality, because regulation authorities have entered to control them and defend individual investors. In any case, roboadvisors are here to stay and have already taken a place in the current financial market.

Image: StockSnap from Pixabay

Tags: Algorithms, AT Kearney, Risk profiling, Roboadviser, roboadvisor,

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