Investing – long considered an art confined to smart bankers and advisors, is the new bastion being eyed by technology. Worldwide robo-advisory is gaining currency and is already making deep imprints in advanced countries like the US and UK with platforms like Wealthfront, Betterment, Nutmeg etc. As per forecasts by Business Intelligence, robo advisors will manage about 10% of global assets by 2020 – which would amount to $8 trillion in assets.
So why are traditional investors lapping up automated advice? And the reasons go much beyond simply being cool with technology. Brick-and-mortar advice globally has been fraught with high costs and hidden commissions. Technology makes it transparent and as per a global survey, makes the cost of advice cheaper by 40-70%. Globally, when most of the economies are struggling to offer double digit returns, this kind of cost reduction enhances the real yield of clients’ money. More importantly, well-educated and sophisticated advisors are not available to retail investors with smaller portfolio values. In India, private bankers have a threshold of US$1 million and above and most of the other distributors/bankers depending on the setup, will come at portfolio sizes above 50 lakhs. This leaves the vast majority of investing community high and dry without any genuine advisor.
Even if we leave the aspect of cost or portfolio value aside – the biggest lure of a human interface is sound advice and intelligent market inputs. To counter this, new age robo-advisors are churning the best-in-class portfolios with their smart algorithms and statistically driven recommendations. To top it, element of bias which knowingly or unknowingly permeates into human interactions is completely done away with. Robo-advisor assures one of a portfolio devoid of any biases, human frailties or emotions.
On top of all this, robo advisors will automate many basic steps of investing, multiple signature requirements, KYC formalities, form-filling etc. Today, most of the online platforms in country offer paperless investing to their clients. With video KYCs and E-KYCs – complete journey of client on-boarding to transacting is a breeze now. Clients have multiple reporting options coupled with research and live analytics on their portfolios. All this can be accessed from varied devices (smartphones, laptops, tablets etc) 24 by 7, giving unprecedented flexibility and on-the-move advantage to a client. Needless to say, the biggest advantage of technology will be in breaking new geographical frontiers which were hitherto not serviced adequately and taking the concept to a large segment of audience which is devoid of genuine help.
Last and the most important, robo-advisors are providing Model portfolios, asset allocation and goal based savings with much more ease and precision. All these are customized to clients’ needs and risk parameters. These are important steps in the journey of wealth creation and are now available in few simple clicks irrespective of their portfolio size or investible corpus.
Regular monitoring, goal-based tracking, portfolio rebalancing, timely market calls are few barriers which robo-advisors will have to successfully overcome to challenge large-scale traditional models. Machine learning and Big data will add the layer of artificial intelligence in future to make these platforms truly customised and human-like. Frantic technology advancement in this sphere is already happening and time is not far when most of these features will be automated and customised in clicks.
Only time will prove, how much will technology permeate and disrupt in this vector but it will for sure force traditional players to re-think on their approach. From revenue-centric models to advise-based approach – industry will have to move closer to customers, offer competitive solutions and enable clients much more than ever before.
Traditional businesses which embrace innovation, adopt simplification and move towards digital solutions will succeed and technological platforms which will inculcate human touch and continue to build on client experience and superior advice will thrive. Somewhere, the solution would lie in a healthy equilibrium as both ends walk towards each other. Call it the Uber moment of financial advice – ultimately, the client will win.
The author, Mohit Gang is CEO and Co-Founder of MoneyFront.