One of life’s little ironies is that it’s not until you can afford the services of a financial advisor that you realise that you can’t actually afford not to use the services of a financial advisor. Seriously folks, a little well placed financial advice can help even the most humble of income streams flow into a beautifully babbling little brook.
Well the good news is that thanks to seismic developments in AI technology, all of us can now (well sort of) afford a financial advisor – a robotic one!
What Are Robo Advisors?
Robo financial advisors (Robo Advisors from now on in) are automated app-platforms that provide financial advice or investment management online with minimal human intervention.
They employ sophisticated algorithms to assess an individual’s financial situation and investment goals. Then, they offer up bespoke advice or (with consent) automatically invest client assets in a diversified portfolio of stocks, bonds, or other investments.
Also read: How Vanguard Robo Advisor Can Help You Reach Your Financial Goals.
These platforms are designed to offer an easy-to-use, low-cost alternative to traditional financial advisors, thus making investment advice more accessible to the wider public. Not only are fees lower, but typically require less capital to get started. This has opened up financial planning services to a much broader audience – but crucially to those who might not have the cash available to pay a human advisor who can charge $1k even for a preliminary session.
It goes without saying that the appeal of robo advisors lies in their efficiency and simplicity; users can set up an account, share their financial goals and risk tolerance, and then just let the robo advisor do the rest.
As technology advanced, many robo advisors began to offer more personalised services, such as retirement planning, estate planning, and access to human advisors for more complex or high value financial questions.
Can You Trust Robo Advisors?
But are they actually any good? Despite concerns about the impersonal nature of the service and the algorithms’ ability to handle complex financial situations, robo advisors have shown themselves to be a worthwhile investment. The fact is that the needs of most investors are quite straightforward, and robo-advisors have proven themselves to be reliable and to deliver satisfactory returns.
However, they can often lack the personalised advice and complex strategy planning available from human advisors, making them less suitable for investors with complex financial needs or those seeking personalised financial planning.
All in all, they continue to grow in popularity, offering a cost-effective, accessible option for investment management and financial advice in the digital age.
Robo Advisors in the COVID Years
While robotic and AI entities are technically immune from the sickness caused by pathogens and novel viruses,’ the COVID-19 pandemic nevertheless took a heavy toll on the robo-advisor niche and at one stage, it even appeared that the sector may die a death.
While the start of 2020 was a golden age for robo-advisors, the period from 2021 to 2023 saw a drop from 27.7% of U.S. investors using the platforms. The decline was even more pronounced among wealthier investors (over $100k in assets), with usage decreasing by an additional 15%.
The decline in popularity of robo-advisors during the COVID-19 pandemic could largely be attributed to several factors, among which the rise of DIY (Do-It-Yourself) trading plays a significant role as budding investors found themselves with time on their hands and little else to do!
Additionally financial markets experienced high volatility and uncertainty, prompting many investors to seek more control over their investments. Then, the emergence of commission-free trading platforms, such as Robinhood, appealed to a younger, more tech-savvy demographic that preferred hands-on management of their portfolios.
Case study of WealthSimple
The Canada based provider WealthSimple is a great example of a notable robo-advisor platform.
Wealthsimple began life in 2014 as a robo-advisor platform in Canada offering simple and affordable automated investment solutions. Over time, though, Wealthsimple has evolved beyond its original robo-advisor model to encompass a broader range of financial services. A pivotal moment in this evolution was the introduction of Wealthsimple Trade, a commission-free trading app that allowed users to buy and sell stocks and ETFs without paying brokerage fees. In 2020 Wealthsimple even launched Wealthsimple Crypto, allowing users to buy, sell, and hold cryptocurrencies which were very much en-vogue at the time.
These transformations and innovations basically represent a full 180 pivot away from the passive investment model the company launched with, and yet they also reflect the company’s knack for responding to market trends and consumer demand.
Case Study of Betterment
Launched way back in 2010, the US based Betterment quickly emerged as a true pioneer in robo-advising, offering automated, algorithm-driven financial planning services with little to zero human supervision.
One of Betterment’s best loved services is personalised investment and retirement planning.
The platform distinguishes itself by providing tax-loss harvesting, asset rebalancing, and tailored portfolio management based on user-defined goals and risk tolerance. With its user-friendly interface and low-cost structure, Betterment has grown significantly and now has over 1 million users. This statistic alone highlights the demand for accessible, efficient investment solutions in the digital age.
Final Thoughts – Is The Robo Advisor Model Dead?
Robo-advisor platforms have now been with us for nearly a decade and half. As you can see, most of them kind of morphed into low-cost brokerages along the way so it could be argued that the full-fledged robo-advisor period has already passed.
Also read: Ally Robo Advisor: The Smart Way to Invest in the Digital Age.
However, all of these platforms still offer these functions to those who want them, and as ‘next generation AI’ continues to improve exponentially, it is almost certain that fully automated investing will come back in fashion within the next few years.
