X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Is Your Robo-Advisor Doomed To Fail? - Outside View by PersonalFN
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Is Your Robo-Advisor Doomed To Fail?
Apr 10, 2017

Investing is a vital constituent of personal finance. But, many of you would agree that it is personal and requires a high level of sophistication.

You need customised solutions, because each one's financial health, circumstance financial goals, investment objectives, investment horizon, and risk appetite, among other factors, could be different. Prudent portfolio activity is pivoted to each of these factors, and ignoring them can cost your financial wellbeing.

The market is flooded with robo-advisors, and everyday robo-advisors are budding. Thanks to the technological innovation and its application over the years.

But what about their track record? Two decades down the line, how many of them would really survive and service you, the investor? Currently, many of them capitalising on the trend are adopting a 'trial and error' approach. They won't desist to see off or jump off the ship, if they don't make money. In such a case, what happens to you, the investor?

Can robo-advisors really work in your best interest, considering many of the aforesaid fundamental aspects of investing, like 'Certified Financial Guardians' do?

Some Robo-advisors platforms on the surface are portraying to offer 'financial planning', where a basic financial plan is doled out. But mind you, financial planning is a comprehensive exercise requiring human touch, handholding, and even emotions to recognise your financial health / circumstances.

Robo-advisors platforms show no emotional bias while processing information due to lack of human intervention. Therefore, finding answers to a host of pertinent questions is tough, and the quality advice will solely depend on quality of input. And while you may divulge a lot of personal information, complete secrecy of vital data is questionable, especially with rising cases of phishing and cyber-attacks.

Further, most robo-advisors do not recognise and capture the altering variables of the economy, which could call for a change in the investment strategy. Take the present scenario, where valuations have scaled a peak and mid-and-small caps having zoomed much ahead of large caps counterparts. If you're still holding mid-and-small cap mutual fund schemes, it could spell a recipe for disaster. Timely rebalancing of your investment portfolio is a must! Thus, a Robo-advisors platform needs to be agile enough to give timely recommendations.

Just as twinkle-twinkle little stars shine or fade, some robo-advisors recommend that you buy/sell mutual fund schemes. But here too, there's a risk of excessive portfolio churning - which may not always be good for your investment portfolio - especially when 'Regular Plans' of mutual fund schemes are promoted vis-a-vis direct plans to earn luring commissions. Also, "one size fits all" approach of star-ratings could be perilous; because one man's meat is another man's poison.

You'll be surprised to know, some of the popular Robo-advisors platforms focusing on mutual fund investing don't have a foundation in mutual fund research. They are either relying on the third-party research, or they are using the most basic filtration. As a result, the investor is left with inferior quality advice.

Selecting winning mutual fund schemes for your investment portfolio is an art and science. You can't be taking anything at face value today; analysis, scrutiny, and even introspection as to what's best for your financial future is imperative.

And please don't get carried away by Robo-advisors platforms offering free services. Being close-mouthed, they are earning commissions via regular plans and securing their financial future. But in the bargain, your return potential is ebbed (due to the higher expense ratio paid for a mutual fund scheme(s) under 'regular plan'). This makes a huge difference to the financial corpus you envision to build for your long-term financial goals - be it children's education, their marriage, your retirement, amongst a host of others. Remember, there are no free lunches.

Also note that Robo-advisors platforms that charge you zero fees are shelling out huge capital on acquiring clients. If they can't sustain the losses, at some point, they might throw in the towel.

Before relying on such robo-investing platforms, you should ask yourself a important question - Can you compromise on the quality of your investments, commitment to serve for the sake of affordability, and convenience?

At PersonalFN. we firmly believe that if robo-advisors cannot astutely recognise and recommend products that work best in your best interest, show commitment; there is no point using them. They are doomed to fail, even though they may be offering reach, speed, and transaction execution.

On the backdrop of this, a financial planner or a Certified Financial Guardian, who is mark of trust and respect, still plays a crucial role in investing and planning for your life goals; but you ought to select one carefully!

Remember, every investor needs a financial guardian. You can't afford to not have one, if you're thinking of your financial wellbeing. So, reach out to your trusted financial guardian today!

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "Is Your Robo-Advisor Doomed To Fail?". Click here!

  

More Views on News

Tata Consultancy Services (TCS): A Decent Start to FY17 (Quarterly Results Update - Detailed)

Jul 14, 2016

Tata Consultancy Services (TCS) has declared results for the quarter ended June 2016. The company has reported a 3% QoQ increase in consolidated sales while the consolidated net profit was up 0.3% QoQ.

Tata Motors: A Profitable Fourth Quarter (Quarterly Results Update - Detailed)

Jul 8, 2016

Tata Motors Ltd has reported a 19% YoY and 202% YoY growth in sales and net profits for the quarter ended March 2016.

Idea Cellular: Interest Costs Hurt Profits (Quarterly Results Update - Detailed)

Jul 4, 2016

Idea Cellular has reported a 12.4% YoY growth in the topline and a decrease of 0.4% YoY in the bottomline for the quarter ended March 2016.

Sensex PE May Look Cheap... But It's Not (The 5 Minute Wrapup)

Apr 27, 2017

Market Indices are touching a record high. Time to tread cautiously.

One Letter That Explains Most of India's Economic Problems (Vivek Kaul's Diary)

Apr 27, 2017

A conversation I was having with a friend turned rather interesting.

More Views on News

Most Popular

Our Private Class with India's Value Investing Guru(The 5 Minute Wrapup)

Apr 19, 2017

Rohan and Kunal present you the discussions with professor Sanjay Bakshi in his virtual classroom.

HDFC Bank: The Solid Outperformer(Chart Of The Day)

Apr 22, 2017

Why HDFC Bank beat the Sensex by nearly 3 times.

The Real Reason Indiabulls Real Estate Jumped 42%(Daily Profit Hunter)

Apr 19, 2017

An elephant and six blind men will tell you more about the markets than any financial newspaper or channel.

In an Ocean of Corporate Defaulters, Vijay Mallya is a Small Fish(Vivek Kaul's Diary)

Apr 20, 2017

While it is important to get Mallya back to India, the government needs to show the same vigour in chasing defaulters of public sector bank loans residing in India.

4 Ways GST Will Impact The Mutual Fund Industry(Outside View)

Apr 19, 2017

PersonalFN explains how GST would impact India's mutual fund industry and investors

More

S&P BSE SENSEX


Apr 27, 2017 03:33 PM

MARKET STATS