March 16, 2018

Robotic advice, you mean “Robo Advice”

Robo advice is a hot and trending topic in the investment space, it is challenging regulators to think differently around how investment advice can be provided to individuals and broadening the access points to reliable investment decision making.

OUTvest is a leading Robo Advisor in South Africa and a CN&CO client. They are providing South African’s with an easy to use investment platform and enabling investors to achieve their investment goals through addressing the advice gap in the investment market.

This is all exciting and has massive potential, but do we actually know what it is or how it works to direct you along the right investment decision path? Are we simply drawn to it because it is something different to the “traditional” we have come to expect from the financial services sector?

Here’s a quick definition of what Robo advice or a Robo advisor actually is and a snap shot of the history, if you want to know more check out the full piece on Investopedia.

“Robo”—a digital interface/platform for you to interact with, capture your data/details on.

“Advisor/advice”—collection of data through a series of questions or goal setting that then allows algorithms to determine the best investment products for the client to achieve the investment goal.

“Robo-advisors (robo-advisers) are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision”

Read more: Robo-Advisor (Robo-Adviser) Definition | Investopedia https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp#ixzz59f4M2ZF6

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The 1st Robo advisor was created by Betterment in 2008. It was intended to provide investors with a simple online interface and fulfill the purpose of rebalancing the asset allocation in an investment that has a limited time frame to meets its objectives/returns.

Since its early days, the concept,knowledge and dataset of a Robo advisor has grown substantially, thus allowing it to fulfill an ever growing number of functions.

Moneyweb recently wrote a great article where they addressed the question of “Will your Financial advisor be replaced by a machine?”.

The article highlights some key points around robo advice.

  • Ease of access, the growth of the digital world is playing a large role in this. Mobile apps and access to smart phones.
  • Get advice on your own terms, not having to share your entire personal finance history with a person.
  • Robo takes big steps to avoiding personal advice bias, as it is using data/algorithms to guide the investor.
  • Humans will still have a role in the advice process—particularly from a counseling view.
  • The traditional advisors need to embrace technology, particularly for product analysis.

What does the future hold for robo advisors?

Time will tell!

However initial investigations have shown that this space has phenomenal possibilities. It will play a big role in addressing the “advice” gap which is present in the investment space, by providing an access point for quality investment guidance.