It is possibly the trending topic in the advisory world: the fight between humans and robots for the business. We hope that the fight will not end as in “Terminator” or “Matrix”. In fact, there is no reason to fight. Robo-advisors appeared some years ago to stay. They are not a kind of fashion trend, but a solution for a specific client’ profile. Moreover, they were not created to remove human advisors from the market, but there are some points of convergence between both.
First of all, we have to establish a categorization: not all robo-advisors are the same. Some companies have developed a pure automatic tool and the client has to do everything by himself or herself. Others have these tools and an online human advisor support. Finally, there are financial entities with online investment tools for their clients.
In any case, all of them have discovered a new world for common people: they can monitor steadily their investments. What are the main advantages of the robo-advisors?
- The fees are low and transparent. You pay for a package with a list of features. You know every time what you are paying for. Technology also reduces the costs. This is a pressure for human advisors, but it has a positive effect in this competitive market, as the less skilled will be out soon.
- Technology connects with the new generation. Older people used to opt for human contact, but Millenians are linked deeply with smartphones and tablets. Robo-advisors fit with their way of connection with the world.
- There is an improvement of the user experience. Clients have a 24/7 service to monitor their investments, to make changes and to manage their portfolios.
- Little investors have a chance. Traditional advisors accept only investors from a specific volume of assets. Little investors are not profitable for them and have found in the robo-advisors a way to control their wealth. In fact, robo-advisors have made finances more democratic.
- Clients feel the control of their investments. They access to a wide rage of organized relevant data with many helps to understand the concepts.
The cons argued by many people are focused on three points:
- There is no personal treatment and robots do not really know the wishes and aims of the clients. Well, we have to point out that robots do not appear by themselves, but they are made by humans. Developers are experts in finances with a long experience in investors’ needs. Of course, there is no voice behind the final product.
- Robo-advisors will show their weakness in a bear market. Let’s see, when it comes. These automatic systems have alert tools to warn the investor about a change anytime. What about human advisors in bear markets? We are sure that many people are not very happy with several of them. And other question: let’s think that there is a sudden stock fall and an advisor has to react for his, say, 10 clients. How fast has he to be to solve these 10 problems?
- The risk profiling is bad. If it is bad, it does not comply with the legal requirements, so it has to be warned. These companies design risks questionnaires to effectively comply with the rules.
Again, there are complementary points: different segments, support robot-human advisor… Time and market will drive future developments, but, in any case, there is place enough for both or a combination. The client will decide the best option that fits his or her needs.