All You Should Know Before You Pay For a Robo Advisor

To make a foray into the investment world, you have to be armed with knowledge and mind you, this kind of knowledge keeps growing and updating. Investment requires extensive and intensive study, whether it is for young or seasoned investors. No matter how much experience you have, you may still feel the need to seek special counsel. That is where financial advisors come.

This is the 21st century, an era driven by exponential technological growth. The rampant scale of digitalization hasn’t left the investment world and its people untouched. Today, the financial advisors I just mentioned above are finding their careers and getting digitalized. This has resulted in what is called Robo advisors. Well, of course, the name is quite suggestive of what these advisors are all about. But the name is just a small part of the bigger picture.

Many High Net Worth Individuals (HNWIs) have begun to hire help from Robo advisors, so have young and/or new investors. But are these advisors worth your time and money? I don’t have an exact answer, but I can offer an insight into what it means to hire a Robo advisor. Take a look at five things about these automated counseling mechanisms. 

Removed from human bias

Being automated tools, you should expect a great degree of objectivity in their operations. They are programmed to swiftly compare and monitor multiple assets at a time and do not charge as much as the ‘human’ advisors do. That being said, you should understand that these are, at the end of the day, programmed tools and represent money management firms. These firms often tailor these tools to advise clients favorably on their funds or use select products for commissions. 

They manage your goals fast, but…

You have come to them to devise a plan to secure a financially buoyant future. The strategic capabilities of the Robo advisors will efficiently undertake all the necessary calculations and offer you a mechanical plan to proceed with. But, when anything is ‘mechanical,’ there is no room for ‘thought.’ Here, I mean ‘human’ thought. The accuracy of these tools will be far greater than conventional financial advisors. However, they lack in an area that defines goals quite significantly. To devise a wholesome plan, one needs to consider the client’s subjective needs that may not be converted into numbers and formulae. That is where, quite often, you will work with hybrid Robo advisors; this means there will be a human agency alongside.

They are still under evaluation

The usual lack of human agency and the automated nature of these Robo advisors has been a cause of apprehension among regulatory authorities across the globe. For instance, while the Securities and Exchange Commission (SEC) of the United States of America has listed its suggestions on how one should transact with such advisors, the question of fiduciary responsibility remains inadequately addressed. Many experts suggest that Robo advisors should not be considered full-fledged replacements for conventional financial advisors and should be resorted to as a supplementary measure. 

How much you pay depends

It really depends on the kind of service you avail of from the Robo advisor. Generally, these advisors charge less than ‘human’ financial advisors because of their automated character, which is parsimonious and time-conserving. There could be platforms that do not charge any fee from you; in fact, their firms earn from the commissions on the funds they recommend to clients. In case you have opted for a hybrid Robo advisor, you will pay more because of the involvement of human assistance. 

It is too early to depend on them completely

The concluding point summarizes my personal opinion. Undoubtedly, Artificial Intelligence has enraptured the world in unprecedented ways. However, as of now, the scenario needs a lot of fine-tuning and development. Robo advisors are incapable of providing customized financial counsel; they are programmed to function in specific ways. In time, of course, technology is expected to become more sophisticated and could undertake highly personalized operations. Until then, you shouldn’t invest too greatly in these advisors. Hybrid Robo advisors are still preferable over completely automated tools.

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