X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 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.
Why Your Robo-Advisor Can't Help You Achieve Your Financial Goals... - Outside View by PersonalFN
  • MyStocks

MEMBER'S LOGINX

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

Why Your Robo-Advisor Can't Help You Achieve Your Financial Goals...
Apr 17, 2017

Will robots replace humans in the workplace altogether?

The question may sound blasphemous.

But unfortunately, some robo-advisory platforms are propagating a wrong message. Many of them are presenting robo-advisory solutions as a substitute to financial planners. While there is no denying that a basic financial plan can be designed with the online platforms; a detailed one is too complicated for it to handle. At best, robo-advisory platforms can deal with the quantitative aspects of financial planning, but they might fail miserably because they are incompetent to consider the qualitative aspects.

Take this as an example...

If the fundamentals of our economy change drastically, robo advisors won't be able to address this problem without human intervention. Under such a scenario, can companies offering such services accept the responsibility of ill advice?

And this one too...

If you think such instances won't happen too often, please consider ones that take place quite frequently. Suppose, interest rates are coming down can robo-advisor generate active calls for refinancing older loans with the new ones?

How about this one?

In a dual income family only one person takes all financial decisions, but both husband and wife have different risk appetite. Whose risk profile should be taken into account when suggesting the appropriate asset allocation?

Mr Robo, please solve this problem as well...

A couple is struggling to decide the priority of their goals.

Also...

Can your robo-advisor offer you holistic counselling on estate planning?

How competent is Mr Robo to advice you on the impact of a particular macroeconomic development on your portfolio?

Assume there is a sudden drop in global financial markets and you don't know what caused the brouhaha in the market. Can you make a phone call seeking information?

As mentioned earlier, there's no emotional bias while processing information due to the lack of human intervention. So asking relevant questions and challenging the output could be tough. Quality of advice would solely depend on quality of input.

Now you may wonder if there are so many negatives of robo advisors in financial planning why even opt for them in the first place.

Robo advisors can help you in a number of ways if you utilise their services correctly.

There are 4 main reasons why robo-investing is gaining popularity...

Unlike financial advisors who often have discriminating policies for smaller investors, robo-investing platforms treat all investors the same.

  1. They offer a reasonable level of customisation of portfolio construction at an affordable cost.
  2. Robo advisors construct and to a certain degree review the portfolio taking into account one's risk appetite and time horizon to stay invested.
  3. Since the portfolio construction and review doesn't involve human intervention, there's no room for speculation.

All worthy robo-investing platforms will have 3 things in common:

  1. They will charge you fees and justify it with their performance
  2. They will offer you direct plans-saving you a great deal of cost over the long term.
  3. And, they will have a proven track record of providing mutual fund schemes with well-researched advice

But please be cautious about data privacy...

You ought to reveal a lot of personal information to robo-advisors. But considering the rise of phishing and cyber-attack cases, you need to be extra careful, by ensuring that the platform you are using has stringent cyber-safety measures for your data. Though, a robo advisor may help you plan for your goals, you still need to realign your financial goals, and this may pose a challenge.

For more personalised financial planning, seek services of a Certified Financial Guardian, who is a mark of trust and respect in the sphere of investment advisory.

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 "Why Your Robo-Advisor Can't Help You Achieve Your Financial Goals...". Click here!

  

More Views on News

What They Forgot to Tell You About Sensex at One Lakh (Smart Contrarian)

Nov 29, 2017

Stocks that could beat Sensex returns in the long term.

How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

Jun 10, 2017

Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

The Technological Marvel That is Ethereum (Outside View)

Feb 23, 2018

Have you been wondering what the hoopla about Ethereum is? It commands the second highest value among virtual currencies and its popularity is rivalled only by bitcoin. Let's break it down.

A New Quest for the Stock Market's MOST Profitable Ideas... (Smart Contrarian)

Feb 23, 2018

If you want to receive the best ideas in the Indian stick markets...you need to heed this important announcement.

Ramesh Damani is Bullish on Niche IT Stocks and I've Found One for You (The 5 Minute Wrapup)

Feb 23, 2018

This IT Company can be a huge wealth Creator for Smart Money Secret's Subscribers.

More Views on News

Most Popular

The Foundation for Sensex 100,000 is Laid(The 5 Minute Wrapup)

Feb 17, 2018

Top three reasons for Tanushree's presentation at Equitymaster Conference to be centered around a possible 30% correction.

India's Rs 1,66,276 Crore Problem(Vivek Kaul's Diary)

Feb 15, 2018

That's the loss, the government owned public sector enterprises are expected to make this year.

The Big Gamble(The Honest Truth)

Feb 15, 2018

Once you accept the fact that elections are round the corner and that this budget is geared to reach a 40% target, everything makes sense.

How I Beat the Index by 2x... And Why I Believe This Could Happen Again(Smart Contrarian)

Feb 12, 2018

Will Microcap Millionaires be able to replicate its past performance of beating the index by 2x?

NPAs Set to Rise Further with New RBI Rules(Chart Of The Day)

Feb 15, 2018

The RBI overhauls bad loan framework. Banks may come under additional pressure due to rising NPAs and increased provisioning.

More

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Feb 23, 2018 (Close)

MARKET STATS