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Key Benefits of Robo-Advisors in Fintech

When you are investing and strive for a higher ROI, whom do you address? As a rule, you reach out to a team of wealth advisors. That means meeting regularly with those financial consultants to discuss your ventures and make adjustments to your investment portfolio. This process is time and money consuming and can be frustrating, as well.

This does not need to be the case. We know how to change it with a revolutionary new approach to wealth management. A new service called robo advising makes it a thing of the past. These digital assistants provide automated algorithm-based portfolio management analysis with accurate figures and efficient risk assessment. Robo advisors make the first steps in the investment communities building a fully transparent and secure experience.

Machines and robots are no longer a mystery.

Machine learning and AI in innovative enterprises are not limited to automated systems, chatbots and smart personalized tools. While 50 years ago, it would have been bizarre to get advice from a digital assistant, now it is a growing trend in fintech that promises to add $2.2 trillion in profits for medium and large investors. With the rise of big data tools, digitized analytics and artificial intelligence, robo advisors are becoming the key to successful financial management:

  • Automated loan processing;

  • Wealth management software;

  • Data management software;

  • Customized advisors and voice assistants.

All these products are transforming the banking world with greater digitalization

Currently, assets managed by robo advisors are estimated at $950,541. This figure is expected to represent an annual growth rate of 27%, which will amount to $2,552,562 by 2023. With the growing application of AI in different sectors, robo advisors will penetrate into multiple industries including manufacturing, ecommerce, banking, and logistics.


               Assets Under Robo Advisors’ Management

How can you benefit from robo advising?

Custom management of small and large portfolios. If you are not eager to invest all your money in assets, robo advising services can be a good alternative to large consulting firms. Every case, regardless of the size and amount invested, requires wealth managers to do in-depth research, analyze the opportunities on the market, define the preferred industries and provide you with the several investment plans. As you see, that’s lots of hassle! When you have a small investment, the majority of firms will provide a ready-made portfolio and won’t waste time for account management. You’ll be lucky if they take time to look through your history and provide you with worthwhile recommendations.

Because robo advisors are meant to be more cost-effective, they work to cover less various target client segment. Even if your investment is under $1,000, the machine analyzes all the opportunities on the market, develops reports and provides the most efficient and profitable way to grow your ROI.

Low Fees. Professional advisors charge from 1% to 5% depending on the industry or complexity of your portfolio. If you want to spread the risk and invest in multiple projects, you might end up paying dozens thousand of dollars for consultancy services. Thus, most professional companies set the minimum investment amount of $500,000 or even $1 million. These limitations serve as a significant barrier for entrance to small and medium investors. Furthermore, market-leading firms have an additional fee for account management. With such excessive costs, small investors cannot afford using wealth management services, so they have to rely on their own knowledge and skills.

Two major robo advisors on the fintech market, Wealthfront and Betterment, come with no account minimum. You don’t need to search for new sources of income or save up money for years. You can go to the website with $500 in your pocket and start your investment journey! Some investment services even combine the benefits of human and digital consultancy allowing their clients to decide which advice they want to follow. For instance, SigFig customers with accounts that exceed $10 000 get access to human advisory firms for free.

“Set it and forget it” Approach. Most innovative robo advisors do not require your involvement. The process is similar to cooking dinner in a crockpot: prepare all ingredients, put them in a pot, set the right regime and forget about it! The device will do everything for you. The same happens when you use robo advisors. These smart financial assistants analyze your requirements, spot the best opportunities on the market and make the investment instead of you. The only thing you have to do is to keep track of all activities to ensure they align with your plans. So, just set it and forget it!

Two Major Opportunities for Growth of Robo Advisors
Robo advisors are expected to grow significantly in the nearest 5-8 years. The statistics research has shown that users are prone to benefit from this service as it will lead to a higher automation rate, more accurate forecasts and improved customer service. So, why are robo advisors likely to succeed?

Millennials’ Passion for Technologies. Millennials constitute the largest group in the labor market. This generation has grown to be tech geeks. Because they have lived through several economic crises, some of them have negative associations with “big banks”. It is more convenient for Millenials to check accounts on the go using their favorite app rather than visit a banker. They tend to trust machines more than humans, and this fact won’t change any time soon. Robo advisors provide them with faster, cheaper and less resource consuming services.

Flexibility. Wealthfront and Betterment are designed to make investment affordable to people from diverse backgrounds. Even if you are not an expert in wealth management, you can use the service for a 0.25% fee. As a rule, there either no entry limit or it is set very low. By eliminating these barriers, robo advisors support digital transformation in fintech bringing innovative tools to make investment more affordable to different client segments. Betterment requires only $500 of the initial amount to be transferred to the account, and assembles an investment portfolio for you and your business based on your answers to a set of questions during sign up.  


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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

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