What is ROBO ADVISOR ? And how it changed the investment world
Can computers replace people and give good financial advice? In the past, investors' choices were quite limited. And included only two options: "do it yourself" or "pay a professional to do it for you" when for the second option it is required to set a minimum investment amount of about 300,000 NIS. These requirements left the service Out of reach of many populations and young people who have not yet reached the required minimum capital.
Led by Wealthfront and Betterment who have been pioneers in the field in the US market and have been hitting since 2014, Reached a growth rate of about 300% per year, created The revolutionary concept "ROBO ADVISOR" There are many definitions of what exactly " robo advisor " is, it is simply a method of automating the allocation of assets using a computerized algorithm built by licensed professionals in the field of investments. with the help of Automated tools can make investment proposals, manage money, balance the investment portfolio. Using technology is a thing Positive in any competitive market. In technological use, costs such as management fees, trading fees and ongoing fees can be significantly reduced. And all this while creating a tailored and dispersed portfolio.
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Something big is about to happen "
In addition to providing a cheap option for investors who want to automate their investment portfolios, the popularity of ROBO ADVISORS has increased Applied pressure to reduce Management fees throughout the U.S. industry.
Demand for them is growing and rising daily and is expected to reach 2.2 trillion managed capital in the United States by 2020 (according to a survey conducted by the accounting firm KPMG).
With the growth of competition in the financial industry, an increasing trend of devaluation of commissions for the investor has developed. With the use of products such as successful ETFs that have a very low expense ratio compared to mutual funds. This issue has been at the center of a number of ongoing discussions. However, the main problem for investors is how to manage the asset allocation strategy, and how to make investment decisions. To this end they must hire a reliable financial advisor to assist them in the process; For a fee of course. Out of the need to get more available and faster investment advice, Low cost, The ROBO ADVISOR was born primarily for investors who do not need the comprehensive services of a typical financial advisor.
“Big banks in the US, like Morgan Stanley, Bank of America and Wells Fargo are under a lot of pressure due to increasing competition with ROBO ADVISORS. In such a situation, it is difficult to justify their salaries, far beyond the costs of services from cheaper investment platforms. "
This opinion was expressed by Kendra Thompson, CEO Accenture, Bloomberg. It estimates that the aforementioned banks, which employ about 46,000 financial advisers, must respond to start-ups that offer new financial instruments based on artificial intelligence technology. , Who seek a minimum of 1% of assets under management.
Robo-Advisers scare big banks "
Bloomberg, February 5, 2016
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ROBO ADVISOR is a digital wealth management tool that provides investment advice Automatic with the help of automatic algorithms without any human interference or with minimal intervention. Due to the lack of human influence, this makes it possible to charge much lower wages than traditional capital management systems. And because the ROBO ADVISOR structure has much lower costs, it also allows investors with low initial capital ($ 3,000) to open an account. This is in contrast For traditional management which Capital requirement The minimum name is usually high ($ 100,000).
The consultation is carried out digitally, The investor fills in some personal details such as age, income and investment goals. From there, the algorithm selects an appropriate asset allocation strategy based on cheap investment options to meet pre-set targets by the investor.
ROBO ADVISOR is a great tool for investors looking for simple, fast and affordable investment consulting services. However, the platform does not offer the same level of service and guidance you will receive from the human consultant. Human consultants are more expensive than their automated counterparts because they offer a more comprehensive and personalized service that requires extensive operation. Typically, human advisors offer investment planning and even a comprehensive financial planning service. Clearly, beyond the services provided by robotic consultants, human consultants can provide other complex value-added services, including retirement planning, real estate planning, tax management, financial education, risk management and life insurance.
Overall, this is a good addition to the financial consulting industry. Which is expected to continue to grow and develop in the technological field. For investors who do not have the minimum capital required Or can not afford to pay the high salary of a human consultant, the robotic consultant - ROBO ASVISOR Can be a perfect solution.
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