The Rise of The Robo-advisor

Artificial Intelligence (AI) is being more widely used around the world. It appears to be everywhere, from home smart devices to the well-known Siri on Apple devices. AI and fintech are even disrupting more traditional industries, such as wealth management and retirement planning.

 

Robo-advisors are the most recent disruptors. These are software programs that use the data supplied by clients to create and automatically manage their portfolios and wealth. While some may be skeptical of this futuristic approach to financial management, these "robots" have the potential to change your wealth management strategy. More specifically, AI robots are increasingly being employed to maximize investment returns and effectively handle a variety of financial needs.

 

By automating financial planning services without the need for significant human oversight, all users need is access to a web or cloud-based device. The rise of robo advisers has taken the world by storm. Initially, fintech development used to rebalance assets as a way for investors to manage their passive accounts. During this period, wealth managers were the only ones who used robo advisers. Now, clients can use this software directly to simulate tactical strategies and manage investments and portfolios.

 

How do these robots function?

So how do they work? The robo-advisor will use online surveys to gather information from clients about their financial condition, as well as their goals and investment interests. Based on the carefully built algorithm, the software will next generate a list of appropriate financial solutions. After completing the online survey, this software can provide the following features:

 

●       Goal planning

●       Tax-loss harvesting

●       Automatic asset investment

●       Management of a portfolio

●       Investor profiling

●       Account services

●       Retirement planning

●       Portfolio management

●       Automatic asset investment

 

Besides, a client’s portfolio is automatically rebalanced once the funds are invested to align it within the desired target allocation. This strategy has also proven to be the most cost-effective approach to investments.

 

Benefits of Robo-advisors

Being on the verge of such a significant technology change, it's obvious that wealth managers should use robo advisors with caution, and yet expect to reap the following benefits:

 

1.      Improve Profile Accuracy and Reduces Fraud

Accuracy and compliance are two important aspects of a successful financial organization. And when it comes to machine learning and cloud-based applications, the chances of deviations are significantly lower.

 

In terms of machine learning, client data may be gathered to shape accurate alert detection and to reduce fraudulent activity. When using robo adviser technology on a mobile device, data like location and activity behavior can be captured in real-time. When a device performs an unusual behavior, fraud detection systems can quickly and precisely determine where the transaction went wrong. On the human side, the biggest advantage is that it eliminates the need for manual input.

 

2.      Transform Your Competitive Advantage Digitally

The wealth management sector is a highly competitive market, and the impact of digital innovations in investment management solutions cannot be overlooked. Therefore, providing conveniently accessible applications is critical whether you're targeting young or experienced and smart investors. Robo-advisors democratize financial advice, allowing clients to view their investment portfolio at any time and easily initiate and exit positions with just a push of a button.

 

3.      Enhance Wealth Management Portfolios

Clients can have access to a more precise portfolio management system, by integrating the best of human and robot financial advisors. Robo advisers use algorithms to select the best investment portfolio for each client based on their goals and financial position. As a result, portfolio alternatives become safer and more strategic.

 

Face-to-face interaction is, of course, better when it comes to any investment opportunity. However, AI lays a solid foundation for clients to gather their facts and considerations before making a final decision. This not only helps you acquire your clients' trust, but it also improves the accuracy with which you invest their money.

 

4.      Maintain a Low-Cost Structure

The fundamental benefit of using robo advisers from the standpoint of a client is that it is a low-cost alternative to traditional investment. Rates and fees are reduced as a result of the absence of human labor. According to studies, in general, human financial planners charge a 1-2% fee, with the possibility to add on a commission-based fee.

 

As AI is becoming increasingly integrated into our daily lives, we can also use it to help our financial planning and for bankers to help us stay ahead and continue to deliver comprehensive services. BanqMart will soon offer robo-advisory service with UAE’s top financial institutions. Stay tuned to learn more!