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3 Benefits Of An Intelligent Robo-Advisory Platform - Outside View by PersonalFN

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3 Benefits Of An Intelligent Robo-Advisory Platform
Apr 25, 2017

It's happened all across the globe, not just in India...

Financial planners charged hefty fees and delivered little results. Investment advisers gave biased advice eyeing the high commissions...

Investors with nominal capital face another difficulty.

As you would know, only a handful of advisers and financial planners are keen to offer them services.

Otherwise, acquiring "High-Net-worth Individual (HNI) clients" is the primary objective for advisers.

Would you like to know what their rationale behind this is?

"All clients irrespective whether they are HNIs or small investors, want top-quality services. As a result, servicing small investors becomes a loss-making proposition."

There might be some merit in this argument, but only to a certain extent.

It's often said that retail investors in India don't want to pay for service. This is a partial truth.

If somebody ever wondered why the average retail Indian investor has been depending on friends and relatives for investment advice, it's because professional advisers avoided him/her.

Does that mean low-net investors should be left out and HNIs are undeserving?

Certainly not.

Technological innovations are helping address issues that concern both kind of investors. Robo-advisory platforms are likely to change the dynamics of the financial services industry in future.

Does this mean investors are to trust machines more than humans?

Not quite. Let's not forget, behind any technology, there's always a human brain at work, as it is in the case with robo-advisory platforms.

In simple words, robo-advisory is the investment advisory service managed by software-based platforms that use human-made algorithms.

Undoubtedly, robo-investing is a significant development that's likely to work positively for investors.

Here's how...

  1. Robo-advisory platforms offer more options to investors as well as to advisers

    If it was uneconomical to serve the retail investor with the human-advisory model, robo-advisory platforms offer an extremely economical alternative to retail investors. Although robo advisers provide you with "programmed" advice, it's customised to an extent, based on the response of the investors to an online questionnaire that tries to assess investment objectives and the risk profile of the client.

    In other words, the quality of the output (advice/recommendations) depends on the quality of inputs (investors' question/enquiries). Therefore, if you are going to use the robo-advisory platform, you need to be careful while filling up the input sheets. The approach you follow while filling up the feedback form at a restaurant isn't the same as filling up this form-you simply can't be casual.

    As far as the investment advisories are concerned, they use robo-advisory platforms as an additional tool that helps blend their offerings. They automate the simpler processes and retain the human-advisory model for more personalised and sophisticated advice. This helps them add more value to their services and may lead to greater client satisfaction.

  2. Robo advisers offer consistent and instant advice

    Human financial advisers are human first and investment advisers later. A variety of events and developments affect them. For example, if your advisor is generally averse to risk, he/she will always discourage you from taking the risk, even if your risk appetite is high and your financial circumstances allow you to take the risk. Conversely, if your investment advisor is aggressive, he/she may sometimes encourage risks, although your risk appetite is low. Similarly, his/her response to your queries may differ depending on market conditions, business targets they may be working towards and your rapport with him/her.

    Unlike this, robo advisers offer you consistent and instant advice. Sure, they are developed by humans, these aren't altered frequently. Their response is purely based on the quality of question/query you feed in. Robo-advisers won't look at the market indices and advise you on your investments.

    The inherent quality of robo-advisers is that these discourage the speculative approach to investing.

    Similarly, they won't be driven by any sales targets, and so won't alter their responses with some hidden motives.

    And these days, instant advice is becoming popular. Whatever be the approach of investors, smart investors understand the nuances of investing and they know that it's better to be patient rather than take any decision in haste.

  3. Better record keeping

    At present, not all human-advisers offer a digital record keeping option to their clients. As a result, many a time, they as well as their clients lose the sight soon after investments are made. Timely evaluation of the portfolio is necessary. Robo-advisers make a significant difference here. They not only help you retrieve even the minutest detail of your investments they offer you a safe alternative to transact.

Things to remember before you use the robo-advisory platforms...

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


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