Home Robo Advisor About Robo Advisor and its potential
About Robo Advisor and its potential

About Robo Advisor and its potential

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Since 2014, I come across this word “Robo Advisor”. Each week, almost I saw at least once this word appears on financial time or Bloomberg news channel. I was wonder what is robo-advisor and robo-advisor application. If you are a typical layman, it does not seem make sense to receive advice from a machine. Can you recall when the last time you receive a piece of advice from a human? How about from a fund advisor? Do you get advice from industry expert frequently? Or never? As working with Financial Institution, I meet a global macro fund manager who specialises managing an offshore investment fund services. As you know, retail investor exposure to the market is insufficient; The most common investment instruments are bond or domestic shares.

Retail Investor investment challenge

Retail investor will have their view on the market, and they might buy some shares or collectable item to hedge inflation. When you buy a property, which is the most common investment vehicle, but its liquidation maybe not so easy during real estate market melt-down. You will try to analyse the market by reading news to check the market pulse. Of course, buy low and sell high is very one dream and how to execute it highly depends on the timing element to get the maximum payoff. A buy and hold strategy are the most common approach, your buying price (entry) and your selling price (exit) is most vital. To buy low (catch the bottom), you are at risk of catching a falling knife. And to sell at the top, you may sell away your winning trade way too early and missed the bull market. In short, a retail investor can only invest in a limited instrument that is familiar to them. Diversify the risk of the portfolio is very challenging as according to modern portfolio theory, there is a lot of study about the risk and return at each price level.

Investment Advisor client onboardingInvestment advisor and robo advisor

As you all know, free advice everyone can give and it can become gossip. But a professional advice from industry expert can be an excellent reference when you are doing your research on building your investment portfolio. As industry experts are very busy with their routine, and they can’t afford to serve as an information reference to every retail investor. Every investor has their investment objective and goal. And hence, to give professional advice, the industry expert has to collect all information of both the market and your investment experience. Hence, these services are usually limited to the high net worth client or so call “Accredited Investor”. Fund advisory services come with charges and investor will pay them for their “tips” or “pieces of advice”. Investment advisors are like insurance agents; they will perform KYC (Know your customer) and help the investor to complete Investment risk assessment form. Then based on that information, the advisor will able to understand the client more and able to provide their advisory services.

What is Robo Advisor?

Robo advisor is one kind of financial advisor which provides financial advice and portfolio management online with minimal human intervention. It provides financial advisor by following mathematical rules and algorithms. As mentioned above, the industry expert will assist the programmer to create a program, and tailor the rules (find tune), to make a general model. Based on the model, the robo-advisor can give a standard advice to all its subscriber. Big bank such as JP Morgan is constructing robo advisor services for its wealth management client. Robo advisor origin in 2008 from united states and others countries from 2011.

Why Robo Advisor?

A advisor is often an automated advisory system that assists retail investor to make a financial decision in trading and investment. The investor does not need to pick out investment, portfolio rebalancing or placing a trade by themselves. Robo-advisor will do that for them. Robo-advisor is often an automated advisory system that assists retail investor to make a financial decision in trading and investment. The investor does not need to pick out investment, portfolio rebalancing or placing a trade by themselves. Robo-advisor will do that for them.

How does robo-Advisor “Advice” look like?

sample of robo advisor online
This is what you see online.

 

Robo advisor betterment
This is what you see on your smart phone.

Robo advisor in financial technology

Multiple banks and asset management have tried to compete on the speed and performance this few year, to come out with robo-advisor to the retail investor. Competition is no on the fees charges, but rather to acquire more subscriber as this is the current trend. It will be a technology disruption to existing fund manager as traditional fund manager charge higher entrance fees on their funds. With robo-advisor, investor can now buy into partial of  ETF and bonds. They can enjoy the best of bond and stock as well. A new sort of online system has emerged which will assist you to manage your investments. This system will measure market movement and give portfolio balancing advises to its subscriber.

Robo advisors will mechanically choose investments instrument and build a varied portfolio for you. The investment and target allocation are purely customised to meet your investment risk appetite and investment objective.  Some robo advisors even mechanically build trades which will facilitate cut back your tax bill; a method referred to as tax-loss harvest. Robo advisors even automatically build trades which will assist cut back your tax bill; a process called tax-loss harvest.

 

I hope this info is helpful to you, please share with your friend by click the share button below. if you have opinion on this topic, please leave your comment below as well.

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Patrick Goh Mr. Patrick Goh B.S is a research engineer with more than 10 years in industry of IT, Engineering and Financial market experience. In 2013, he joined financial institute’s research team as R&D software engineer mainly researching on technical analysis, inter-market correlation and fundamental factor in leveraged trading instrument using machine learning technique and programming algorithmic trading strategy by quantifying trader sentiment behind the price movement.

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