Solutions

Robo-advisors are digital platforms that provide automated and algorithm-driven financial planning services with little to no human supervision. The concept of robo-advisors started during the financial crisis of 2008, when small investors had cash surplus as they pulled money out of equities and interest rates touched zero. Betterment, the leading robo-advisory firm, seized this opportunity by encouraging investors to invest in algorithm-driven portfolios for getting steady returns. Since then, robo-advisory became the buzzword of the wealth management industry and many traditional players have now launched robo-advisors as part of their solution portfolio. In spite of the increased adoption, robo-advisory is yet to match up to the hype around its origin, and robo-advised assets are a drop in the ocean at $1.4 Trillion in Jan 2020 in comparison to the size of the investible assets at $22 Trillion and overall $9 Trillion cash sitting on the sidelines.

Robo-advisors are designed to understand investor needs, propose the investment and allocation strategy, implement the selected allocations, monitor results, and perform the portfolio rebalancing as per the strategy. Robo-advisors offer easy account setup, robust goal planning, account services, portfolio management, security features, enhanced customer service, and comprehensive education. In addition, services such as tax-loss harvesting and retirement planning, traditionally offered only by large wealth managers, are often packaged into the robo-advisory offering. Robo-advisors provide efficiencies in addressing a wider range of investors including underpenetrated mass affluent and small investor segments of wealth management, and differentiate through intuitive investing experience with fully digital and online processes.

The challenge with robo-advisory lies partly in the design of the platforms, which limit personalization for self-driven investors while access to skilled wealth advisors is often a premium solution. Robo-advice is yet untested in volatile markets and their performance during deep disruption akin to the COVID-19 situation will be closely watched.