22 Jul Why You Should Approach a Roboadvisor for Investment Management

Investment machines

Roboadvisors are a class of financial advisors that provide electronic portfolio management services with minimal human intervention. They make use of algorithms such as Modern Portfolio Theory to conduct portfolio management. Their main task is to perform ‘cookbook’ financial investment management through a computer based, automated style of service for a nominal fee and small account size.

Evolution of roboadvisors

The tools used by roboadvisors are similar to those used by earlier portfolio management software, but the difference lies in the use of distribution channels. Until fairly recently, portfolio management was conducted mainly through human advisors, with the services of the roboadvisor sold as a bundle with other services. However, with the arrival of the internet, consumers today have direct access to the software and can personally employ the services of roboadvisors.

Benefits of using roboadvisors

There are many benefits to using a roboadvisor, such as:

1. They design highly personalized and sophisticated portfolios for financial management.

2. The process is automated and eliminates the need for manually performing various tiresome financial tasks such as rebalancing, individual investment purchases, portfolio design and tax loss harvesting.

3. The cost of setting up and employing the services of a roboadvisor are very small compared to hiring a human investment manager.

4. It has become a common practice for financial investment practices to ‘white label’ roboadvisor platforms for the clients, which takes the task of choosing assets out of human hands and is redirected to the machine, leaving the advisor and the clients free to address individual tax, estate and other issues.

Choosing the right software

There is a variety of roboadvisor software available in the market for your investment needs. Some of the better known ones include Betterment, Wealthfront, Motif Investing and Wealth Advisor. While choosing a roboadvisor, special attention must be paid to model portfolios, fees and any additional benefits offered.

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