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5 Ways A Good Robo-adviser Can Help You In Financial Planning... - Outside View by PersonalFN
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5 Ways A Good Robo-adviser Can Help You In Financial Planning...
May 11, 2017

With the advancement of technology, your shopping destination has moved from brick and mortar stores to online marketplaces. In the US, retailers are shutting their physical stores with the rise in online shoppers. Just a couple of days ago, global retailer Bebe Stores said it would close all its 175 shops and may move to an online-only model. Many others are following suit.

Similarly, in the financial world too, your mode to invest is shifting from signing and submitting paper forms to simply entering a transaction password. With a push from the market regulator, distributors are now playing the role of investment advisors.

Presently, we have computer algorithms (also known as robo-advisers) that offer personal financial and investment advice on submitting your personal finance details. And there's no need to fix an appointment, you just need to log in to your account, submit your info and voila!-your financial plan is generated in an instant.

With a 24x7-service window, robo-advisers are the future of financial planning and investments in a time-strapped world.

Haven't heard of robo-advisory platforms before? You're not alone. According to a survey by Gallup, in the US (where there are more robo-advisers than in India), less than 50% of investors were familiar with this service. Just about 5% are highly familiar or have already used this service. So clearly, there is still a long way to go before these platforms gain recognition.

Also read: Will Robo-Advisers Spell Doom for Traditional Financial Planners?

The Gallup poll defines robo-advisers as "digital advisory services that use computer algorithms to select stocks and other investments for people based on the information people provide about their risk tolerance and goals".

However, online advisors come in a variety of options. Some may offer you complete automation-that includes creating your financial plan and completing the transactions. Others may just offer transaction services with the financial advice given offline. With the plethora of automated financial planning services available, you need to choose wisely. Along with the services provided, you need to check if these robo-advisory platforms are putting your interest before theirs.

Here's five ways a good robo-adviser can ensure your financial well-being:

  1. Understand your financial goals

    The key to any financial plan is to set and prioritise your financial goals. If you're in a situation where investments are made randomly without being goal-centric, first align your current investments towards your financial goals. A good robo-adviser will help you do just that.

    Retirement, savings for a house or property, child's educations, etc. are important financial goals. With a good robo-adviser, you can set up multiple financial goals with just a few clicks. All you need to do is enter the details and the robo-adviser will generate a plan suggesting the monthly commitment needed to achieve your goals.
  2. Select the right asset allocation

    Calculating how much to save every month is just the first step. A good robo-adviser understands the need of an efficient asset allocation. The asset allocation is defined based on your risk-profile and investment horizon. Therefore, if you are investing for the long-term or if you are a high-risk profile investor, the plan will include a higher allocation to equity. Conversely, if you are a low-risk profile investor, you will be asked to invest a higher amount in debt. This will ensure that the risk is managed efficiently, without compromising on returns.
  3. Select the right products

    There are myriad financial products available. Most robo-advisers will suggest investing in mutual funds as these are the most convenient form of investing and you can allocate among different asset classes. However, under mutual funds, there are hundreds of plans available under the different categories. A good robo-adviser will help you separate the wheat from the chaff. In other words, the robo-adviser will select mutual funds that are back by sound research. Performance will not be the only criteria. There will be different qualitative and quantitative parameters that will be looked at before arriving at the top schemes.
  4. Creates a habit of investing systematically and regularly

    To create wealth in the long-term, investing regularly with discipline and determination is the key. Saving and regular investing can enable you to meet all your financial goals in life in a comfortable manner. With a robo-adviser that provides good service, you can just set and forget. Your robo-adviser will do the rest.

    Once you have created your investment plan, your robo-adviser will keep it on track. If investing on your own, market noise may sway your investment decisions. If you buy because the market has gone up, or sell because it has gone down, you may ruin your financial plan. A robo-adviser will be devoid of these human biases.
  5. Low on costs

    When planning for their finances or investing, you may tend to ignore costs. Especially, when costs are mentioned in percentage terms, it may seem small and insignificant. However, with the power of compounding, these expenses may eat up a substantial amount of your wealth. Thanks to technology, robo-advisers are able to lower their costs; hence, they are relatively cheaper than traditional financial planners.

    A good robo-adviser will be low on costs and offer you mutual fund direct plans as an investment option. Over time, this will help you save lakhs of rupees.

Read here: Why a robo-advisory platform should offer you direct plans?

To conclude...

If you are always strapped for time and your financial planning bears the brunt, then a robo-adviser can offer you a world of convenience. From KYC (Know Your Customer) compliance to transactions, everything is virtually paperless. This convenience does come at a cost, hence opt for a specialised robo-advisory service that will ensure your financial well-being and proves to be worth more than the costs.

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


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.

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