Technologies have advanced tremendously over the last few years and it comes as no surprise that we witness more and more algorithmic solutions to our problems. The financial sphere has also implemented electronic trading tools and digital signatures in order to help people invest money in the appropriate direction. The majority of traders, especially newbies, require a professional financial advisor that would provide all the essential information for them. However, it comes with enormous costs, and most advisors require an account consisting of five to six figures. 

Given the fact that many people can’t afford to pay such a high amount, it was necessary to come up with different ideas. Therefore, Betterment established one of the first electronic programs called Robo Advisor in 2010 and the main point was to give every individual the possibility to get financial recommendations at a fraction of the cost. It utilizes algorithmic trading tools, so there is no need for a human financial advisor from the equation. Robo Advisors have certainly solved a lot of issues for novice traders, but the real question is whether it is fully capable of replacing human labor. The majority of experts think that it still has a lot to prove! 

How Robo Advisor Works

As we have noted above, the main idea of launching an algorithmic-based financial advisor was to make this task affordable for novice traders who don’t have a lot of money in the beginning. It uses pretty much the same software as humans, but the main difference is that Robo Advisors are accessible to a larger audience given their low costs. Besides being significantly cheaper, they also offer lower minimum investment amounts; therefore a great number of novice investors have shown interest in them. 

Robo Advisors bring enormous benefits since it is heavily based on technology. There are much lower risks of committing human errors in this case, and the machine has the possibility to manage dozens of portfolios without any difficulty. As we read in the Bit Index AI, one of the most appealing features of Robo Advisors lies in their ability to automate investing strategies like MTP, also known as modern portfolio theory. What’s more, they are able to precisely follow market movements and monitor portfolios accordingly. 

One of the most appealing qualities of Robo Advisors is that it is far more efficient compared to humans. Before Robo Advisors, you had to contact or physically meet financial advisors if you wanted to open a certain trade. But now, you can do all the work in a split second by clicking a few buttons at home. As you can see, Robo Advisors are highly attractive resources if you wish to get financial guidance at a low cost and carry out every process within seconds. 

Correlation Between Robo Advisors and Financial Advisors

Despite the fact that Robo Advisors have brought immense advantages to the majority of traders, we have to say that some people still feel skeptical about them. The main innovation is that they have completely ruled out human decisions and advice in the financial sphere. As we read in customer feedback, this fact has its own benefits and drawbacks.

First of all, we want to point out that being a technological tool, Robo Advisors don’t require the tiring processes of signing papers. Also, with the help of algorithmic resources, they are able to execute trades much quicker and monitor portfolios without any errors. Nowadays, the majority of Robo Advisors include their own financial advisors on-call in order to give customers proper guidance. However, they are not able to provide certain investment suggestions since the algorithm does not allow them. 

This is one of the downsides of them, since every human financial advisor will provide assistance regarding every subject you wish. But, keep in mind that you need to pay a significant portion of your funds in order to get full guidance from them. So, if you wish to get more sophisticated recommendations on every desired investment, the best option would be to stick with the traditional financial advisors as the results might be much more attractive in the end. 

Even though humans are prone to mistakes and errors, sometimes it’s better to follow their guidance. This is because gut feelings are what make them win in the trading world and most importantly, their experience has more value than algorithmic tools. Therefore, human services are more costly. 

The best recommendation would be to choose a hybrid approach, which means to go for both options. By doing so, you will be able to experience both the human workforce and algorithmic tools that work together in order to furnish you with the highest quality of services. It’s not entirely clear what the future holds in regards to Robo Advisors, but experts are saying that they have enormous prospects.