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November 30, 2021

Robo-Investing is the future of wealth management

Photo by Nataliya Vaitkevich on Pexels.

Robotics technology is a crosscutting field that leverages technology, science, artificial intelligence, and machine learning for manufacturing robots, which aim to replace human actions, particularly those that are more tedious, risky and require 24/7-time allocation. Robotics has been around for quite some time, and it is now applied to a broad range of sectors, including manufacturing (auto being the leading one), healthcare, construction, and electronics.

The recent Covid-19 Crisis has accelerated the deployment of Robotics, as we realized that we will be relying more on machines to address critical business and service delivery needs particularly those that were interrupted during the Covid 19 Crisis. Supply chain, health care and wealth management are some of the sectors benefiting the most from Robotics technology during the recent pandemic. In this blog I am covering the part of Robotics as it applies to wealth management and investment advisory, as more people seek automated digital solution for the capital preservation and alpha generation.

Robo-Investment Advisory

Automated investing services, also known as Robo-advisory services is a growing and promising application of robotics in finance. Robo-Investment uses computer algorithms, complex math formulas and sophisticated software to manage investment for users. Services can vary from automatic investment, portfolio management and tax services. Robo-advisor typically require very limited human interaction, are quick to set up and have low or no minimum investment requirement.

What are the Robo-Advisors Key benefits:

Free of human biases: One of the attractive aspects of Robo-Investing is that we are removing any potential emotional bias that human led investors may use, and instead leveraging mathematical formulas to assess the viably of an investment.

Low Set up and Maintenance Fees: Robot led investment has extremely low cost of set up andmaintenance compared to the typical wealth management approach, where among other things there is a much higher financing threshold required to have access to these services.

Registered With the Regulators: Robo-advisors follow the same rules of any investment advisory company and are registered both with the U.S. Securities and Exchange Commission (SEC) as well as with the Financial Industry Regulatory Authority (FINRA) giving Robo-advisors a high level of protection and legitimacy.

Robo-Advisors Are Getting Smarter: Robots, powered by AI, big data analytics, machine learning continue to become smarter, and learn the investors needs and risk tolerance, and thus can anticipate the client needs and thus personalize their offers systematically.

Time and Cost Efficiency: Rob-advisory services can be established from your home using trusted financial institutions (like Schwab) and get operational within few minutes with investment ranging from 1000-5000 US$. To access Robo-Advisory services you just need a mobile phone and access to the internet.

Market Trend: In 2020, robo-advisors in the U.S. accounted for approximately $390 billion in Asset Under Management (AUM). We expect to see considerable growth as the technology gets adopted by more institutional investors which target a much broader user base beyond the tech savvy millennials and Generation Z.

According to recent market analysis, in 2021about 4 million people in the United States will trust Robotic Investment advisors to manage their investment (big or small), this represents an increase of about 25% over 2020, and this industry is expected to reach 1 US$ trillion of AUM by 2024. The positive trend will continue as Robo-Advisors will become more sophisticated, and offer an expanded list of personalized financial services.

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