Tag Archives: Millenians

Robo-advisors: pros & cons

T-Advisor my portfolio tool in robo advisor

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?

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. Clients feel the control of their investments. They access to a wide rage of organized relevant data with many helps to understand the concepts.

Robo-advisors offer several tools for self-directed investors

The cons argued by many people are focused on three points:

  1. 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.
  2. 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?
  3. 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.

A new business model: robo-advisors

Main screen robo-advisors: T-Advisor

It is interesting how the discussion has developed in the lasts weeks about the new wave of online advisoring services. Recently known as “robo-advisors”, these services offer the users a range of professional tools to manage by one-self the own assets.

The discussion points out how it will change the advisoring industry. We wonder if the industry didn’t change yet. Some writers speak about the “Millenian effect”, naming the current generation who has entered the asset management services and demands other solutions, totally different from the older ones: more interactivity, more personal decisions, more own information and availability of resources to take more independent decisions. We have already commented about it.

There is also an economic reason: robo-advisors have a quite lower price in comparison to traditional advisors. Somehow, there is a lot of fear amongst these professionals, but the question is: why not to make the fear into an advantage? For instance, T-Advisor combines solutions for individuals and for professionals, giving the chance to both to speak the same language. It is not absurd that people who share the same screens have more confidence to each other.

Elliot Weissbluth recently commented that these online services mean a disruption for the industry, but it should not be seen as the end or the total substitution of the human advisors. On the contrary, it will help separate good and bad professionals. Think about that: your advisor makes you lose money, he or she does not appear very skilled, but this person receives the monthly fee from you. Why to pay for it, if you have cheaper online services with advance and professionals tools? (Tools, as this professional should manage…). However, good professionals will not suffer from these robo-advisors. Their customers will not risk changing, if they have their profits.

One more reason for these online services: democratization. By now, people with a small portfolio think twice to pay an advisor, but the online fees are quite lower. This is a chance for them, because they can manage their assets and try to get the highest earnings for their goals.