Is it time to consider a robo-advisor?
Robo advisors
Posted by MoneyController on 08.02.2023
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Volatility in the financial markets makes investing risky and returns complicated. For many investors, the use of a professional is becoming increasingly important, even though the work of a financial advisor comes at a cost. From this perspective, robo-advisors have the advantage of offering professional investment programmes that reduce the costs associated with the human component of advice.
Advances in fintech have created the opportunity for financial advice to be automated. Robo-advisors are programmes that build investment portfolios based on investor input. The data that robo-advisors ask users to provide includes return targets, risk appetite and investment time horizon. In a situation like the current one, where it is particularly difficult to generate returns in the markets, robo-advisors significantly reduce the cost of personal financial advice.
Robo-advisors offer real advice and are therefore subject to the rules of the authorities that regulate investments and financial markets. They are usually fairly easy to use and accessible to most users on the internet: it is often a simple matter of filling in questionnaires.
But can robo-advisors really replace a personal financial advisor? Alexandra Horwood, a portfolio manager and investment advisor, describes robo-advisors (in The Globe and Mail) as useful, low-cost tools that have, in a sense, democratised investing. For example, if you want to invest a certain amount of money in the financial markets, a robo-advisor can put together an investment portfolio in a short time and at a much lower cost than a human financial advisor.
However, as Horwood explains, investors' financial needs become more complex over time. Many investors and savers are often looking for holistic financial advice, not just to invest a certain amount of money in the markets, but also to plan their finances with specific goals in mind (buying a house, paying for children's education, building up a pension, etc.), optimise their tax situation, deal with insurance issues and more. In this case, Horwood believes that the human element of advice will remain fundamental and irreplaceable.
Read also:
What is financial advice and what does a financial advisor do?