Rise Of The Machines: What You Need To Know About Robo-Advisors

Automation has disrupted every industry known to humankind — and now the robots have come for the bankers and financial advisors of the world. These digital financial experts allocate, manage and optimise assets based on an algorithm, with barely any input from a human user.

Now that more robo-advisors entering mainstream consciousness, we tackle a few basic questions about these machines and whether they’re out to steal private bankers’ jobs.

Has technology done more good than bad?

What exactly are robo-advisors?

Like private bankers, robo-advisors provide either financial advice or portfolio management services. The former entails the robo-advisors generating financial advice pursuant to clients’ risk appetites and investment objectives. It’s up to a client whether they want to act on the advice provided.

Robo-advisors play a more active role in portfolio management services. They continuously re-assess market conditions and adjust the product composition of the clients’ portfolios where necessary. These robo-advisors run on algorithms; human intervention is only required to maintain the integrity of the software.

How popular are robo-advisors?

The demand for robo-advisory services is substantial. In 2014, U.S. robo-advisor services managed US$16 billion in assets. In 2015, that figure increased to US$50 billion.

The MAS released a consultation paper on proposals to facilitate the provision of digital advisory services in Singapore on June 7, 2017

Singapore wants in on the action, too. Earlier this year, the Monetary Authority of Singapore launched a public consultation paper on proposals to facilitate widespread provision of robo-advisory services, the increased availability of which will improve the financial community’s range of choices for low-cost investment advice.

Some other local players have gotten a head start on them. As of end-2016, Mesitis, a robo-advisory firm, had a total of S$3.6 billion of assets under management. Other players such as Bambu and Smartly are exploring the field as well.

Interestingly, while the robo-advisory field was pioneered by U.S. startups such as Wealthfront and Betterment, traditional wealth management giants like BlackRock and Vanguard have entered the field. These traditional players now hold similar market shares to the pioneers — showing that even they have recognised the need to keep abreast of current fintech trends or risk being left behind.

Will robo-advisors put the bankers and financial advisors out of a job?

Robo-advisors offer great basic advice, lower advisory fees and are certainly more convenient to use. They process data quickly and efficiently. Tech-savvy millennials may adopt these automated advisors more readily than Generation X types.

That said, it’s the difference between seeing a GP and self-diagnosis on WebMD. If you prefer your advisors with a friendly face, humans have better bedside manner when offering personalised advice in tough times — for instance, when a market enters a downward spiral or an investee business fails.

At the end of the day, investment is about more than crunching numbers. Human advisors understand the sophisticated nuances of portfolio construction and how it can be affected by global economic headwinds.

Most robo-advisors haven’t yet reached this level of bespoke investment counselling — but only time will tell. For now, we’re inclined to think they’ll be helping human advisors save time on the simpler or lower-stakes enquiries, not stealing jobs altogether.

This article was published by FundedHere. FundedHere began operation in March 2016 and is the first homegrown Singapore-based platform to offer equity and debt-based crowdfunding.

For more information, please go to www.fundedhere.com