NOVEMBER 3, 2021
9 min read
No. There’s no necessity to worry about a natural course of development occurring within the IT domain. Automation implies progress and optimisation, endowing professionals from top fintech companies with more precious time to deal with creative solutions instead of messing about with mechanical, repetitive ones. At the same time, AI-based algorithms can indeed pose a considerable threat to some job positions and humans behind them. How about financial advisors? Due to high consultation fees and often biased advice, many young investors begin to prefer robo-advisors over humans of flesh and blood.
Fintech software already contributes to the revolution in wealth management, financial planning, investment, and consulting. AI-powered applications are faster in big data research, provide more accurate results, offer convenient remote operation, and are less expensive than qualified financial advisors in luxurious offices. By definition, robo-advisory software presupposes a digital platform where users can avail themselves of automated and algorithm-driven financial planning services with little or no human intervention. By 2020, the total value of assets managed by robo-advisors reached over $8trln. Interestingly, the number of assets under the management of robo-advisory software is expected to increase with an annual growth rate of almost 19% by 2025.
According to Forbes, AI algorithms that drive such advisors research the market to offer quick solutions based on investor preferences, goals, risk tolerance, and threats. Fintech software in banking already performs a lot of work usually done by humans, indicating that automation serves as a marker of progress. Fintech startups spring up on a daily basis, and the investment value in companies representing this financial sector hit $105bn in 2020. Aren’t these numbers demonstrating that humanity has chosen the right path of evolution to minimise effort and time while maximising the output? Are you still afraid of android invasion?
What Is the Role of Fintech Advisory?
A curious fact: AI-powered fintech advisory services first appeared in response to the 2008 crisis. Back then, affluent bank customers with cash surplus required high-quality financial assistance. That was a year of triumph for Betterment, an online investing company with a pioneer robo-advisory technology launched right in the middle of the 2008 economic storm. Their cash management suite is still one of the best within the financial services industry. But more on that later.
Still, why would people need fintech advisory? Simply put, both timid newbies and hard-headed tycoons require financial consulting to:
- Know the risks and evaluate them properly;
- Identify the level of return on investment (ROI);
- Plan saving and spending;
- Ensure security for a significant amount of financial resources;
- Stay up-to-date with the latest trends, market fluctuations, etc.
All right, now you’ve got the goals. Yet what are the most widespread reasons why people address robot or human financial advisors? Well, let’s suppose a few possible scenarios:
- You want to secure your house;
- You’re willing to take advantage of windfall or inheritance;
- You’ve happened to remarry or plan to divorce;
- You’re intending to purchase or sell something really expensive;
- You’d like to manage retirement expenses.
Therefore, the role of fintech advisory lies in providing professional research-based advice for clients willing to manage their financial affairs and/or resources. The only question is whether you need a human or a robo-advisor for your particular purpose.
How Humanity Benefits from Robo-Advisors?
If you make use of financial advisory services not to manage family or individual savings, you probably play hard and lead an organisation of people dependent on your decision making. In this case, you already know that arranging a meeting with your advisor as well as regularly visiting them consumes time, effort, and money, just like an old tractor needs tons of diesel to move on. Isn’t it more straightforward, thrifty, and less stressful to employ a robo-advisor to help you manage your wealth remotely? Although even modern AI-based solutions aren’t entirely automated and require a certain level of human intervention, they’re still a better option for most hardened businesses, startups, or other forms of activity involving finance.
So what are the main benefits of robo-advisors for fintech companies and other interested entities in web banking?
- Low fees and cost-effectiveness;
- Customised portfolio management;
- Flexibility and adaptability;
- The ability to operate remotely;
- Smoother customer onboarding;
- Less capital to start;
- 24/7 operation.
In any event, while robo-advisors do their monotonous job, real people employed in fintech companies get more time to handle creative tasks, which, after all, is the core goal of any automation. Already googling how to hire a robo-advisor? Just hold on a minute, there’s more to discover. Be ready for a handful of implications!
Pros and Cons of Using AI-Powered Solutions in Advisory
Like any other solution based on artificial intelligence, robo-advisory services are gradually congesting the global fintech market, inasmuch as the industry’s central pillar is automation. However, is it a perfect ultimate solution, placebo, or a temporary trend that will eventually yield to alternatives? Thus, below you may find the list of pros and cons that come with robo-advisors:
- They charge an annual fee of 0.2%-0.5% from a user’s account balance;
- You only need an Internet connection, and a robo-advisor is good to go;
- Human advisors rarely consult customers with less than $100k in investable assets, while software alternatives don’t care about win-win relationships;
- These solutions usually don’t have minimum balance requirements or they’re significantly lower;
- Most robo-advisors are powered by the Nobel Prize-winning investment theory;
- They guarantee a wide variety of options depending on each customer’s preference and goal;
- Due to reliance on exchange-traded funds, robo-advisors help you diversify your investment portfolio by spreading finances across multiple industries, regions, and market capitalisations;
- Unlike human advisors, AI-based software will never give biased, inaccurate, or emotion-driven solutions.
- Robo-advisors can rarely ensure investor flexibility;
- They still aren’t entirely personalised;
- In some unique cases, when your investment goals are too specific and broad, you may need to consult a real human advisor to discuss extra implications;
- Robo-advisors can’t be examined as a one-size-fits-all wealth management software;
- They don’t provide education services and are unlikely to teach you the fundamentals of investment and financial planning;
- You may feel lonely while sticking exclusively to the software without meeting people in person and discussing your issues with them.
Human Advisory vs. Robo Advisory: Is There a Feud?
Fintech software development is a multifaceted process, let alone creating apps based on artificial intelligence. In this relation, can robots become better than humans if they’ve been made in their image? Will there ever be a golden mean? Already is. Hybrid models have recently become the best option for many investors and fintech advisors themselves. They ensure access to a broader range of clients, help segmentise markets, allocate resources properly, and assist with portfolio rebalancing.
The feud between humans and robo-advisors is incredibly unlikely, not to mention that the latter will ever replace the former to the fullest. Today companies refer to robo-advisors to improve the work performed by people, reduce costs, and make use of machine learning that, unlike humans, can process vast quantities of financial data.
In 2019, only about 20% of affluent millennials addressed robo-advisors for their financial purposes. In turn, the 2016 survey, discussed in the article published on Finextra, indicated that only 40% of customers didn’t feel comfortable going with an automated investment platform. Just be mindful that not everyone wants to have a way with AI-powered software instead of real humans.
The pandemic has undoubtedly influenced the spectrum of preferences in fintech banking, but a high number of clients remain loyal to their human advisors. Although present-day fintech news resources are replete with software built upon artificial intelligence and machine learning, robo-advisors somehow manage to lag behind trends when it comes to mass culture.
Robo-Advisory Services to Pay Attention to in Wealth Management
Fintech banks and organisations whose activity relates to financial services quite frequently delegate much of their monotonous workload to robo-advisors. What you see below is an assemblage of the most successful and widely referred to companies that provide robo-advisory services in 2021, according to various fintech web resources.
As mentioned above, Betterment is a pioneer in robo-advisory services. $0 minimum deposit, portfolio customisation, and no trade as well as transfer fees is what makes this robo-advisory fintech company an optimal choice for most investors. With their app, you can quickly and straightforwardly manage your account, specify investing goals by classifying them into short- or long-term ones, and synchronise external retirement accounts. Beyond question, there are a few cons to be aware of, including a requirement of having at least $100k on balance to open a premium account or 0.40% annual account fee charged for owning an upgraded premium plan.
With no management fees and an account minimum amounting to $1, SoFi is one of the most renowned fintech web apps as well as a company that pushes forward the robo-advisory technology in 2021. At SoFi Invest, you get free access to certified financial advisors and planners. Founded in 2011, the company expanded the scope of services from student loans to wealth management and personal finance planning, which undoubtedly helps them attract new audiences.
Unlike SoFi Invest, Wealthfront offers their services beginning with an account minimum of $500 and a trade commission of 0.25% once a customer gets the first $5k. Actually, these are the only relative disadvantages. In contrast, you’ll receive such perks as tax-loss harvesting, their referral Invite Program, automated investing, and an effective approach to choose investments after analysing a user’s risk tolerance.
On the contrary to other robo-advisory service providers, Charles Schwab offers their solutions only if you’ve got at least $5k on your account. Nonetheless, in case you need fully customised financial advice for low fees, this company is your exact choice. What’s more curious, they don’t have any management fees. The only major fee involves a one-time planning fee of $300 and a $30/month advisory fee afterwards. What you’ll acquire in return is access to unlimited guidance from a certified financial planner, roadmap, and interactive online planning tools.
Surprisingly enough, you’re good to go with a zero balance on your freshly opened account if you choose Acorns. The company charges only $1-$5 monthly fees and offers several account types along with automatic round-up investing. But Acorns doesn’t ensure tax-loss harvesting or human financial advisors, which can be a persuasive argument to select an alternative.
Top 5 Scenarios When Robo-Advisors Are Indeed Helpful
- When you want your invested finances to flow on autopilot. Based on your risk tolerance, market research, and personal preferences, a robo-advisor uses algorithms to manage your finances almost automatically without your intervention. Since these ‘robots’ rely on Efficient Market Hypothesis in tandem with Modern Portfolio Theory, the result of their work is foreseeable and thus manageable;
- When you don’t need guidance and education. Frankly speaking, artificial intelligence can’t replace qualified and experienced human advisors who may be eager to guide you through all challenges surrounding the investing craft. But if you require specifically an automated service, robo-advisors remain your choice;
- When your journey has only begun and you’d like to save costs. Provided that human financial advisors and planners are an expensive pleasure, many young investors may prefer robots due to low cost and knowledge threshold as well as automation;
- When your business and investment activity isn’t limited to a certain geolocation. Let’s clarify this point by adding that robo-advisors are a good choice if you’re a travelling business person so you don’t always plan to keep in touch with a human advisor. Remote management and customisation allow you to invest while sitting on a cosy couch in a 5-star hotel;
- When you’re too independent to delegate authority to other human beings, yet algorithms are okay. Sad but true.
Robots as Advisors — Curse or Blessing?
As always, no one should approach anything from a polar standpoint when A is entirely inadmissible and B will remain a perfect option for keeps. Robo-advisors are neither good nor evil. Instead, it’s an effective technology, one to cherry-pick from if you’re a young and thirsty investor. In fact, there’s still more to learn about this side of fintech in banking.
If all the information in this article seems overwhelming, you’re eager to learn more, or just want to cooperate with fintech experts, contact DashDevs to receive top-notch advice. We’re still humans, after all!