What is meaning of Term Robo Advisor and their benefits
Historical Customer-Advisor Market
Traditionally Investments, Wealth Management or personal finance is being driven by so-called Wealth Managers or Financial advisors, who are considered to be experts in financial management. These advisors primarily work like doctors and post understanding of customer needs, advise them various financial products to fulfill all kinds of financial needs of- Credit, Protection, Investment, Savings , Financing etc.
Advisor’s services generally are free for customers with most of these consultants don’t charge their customers any fees and get their revenue from selling the financial products like Insurance, Mutual funds, Loan etc. of various companies as commissions. For the customer it seems to be a win-win situation, as there is no extra upfront charge on them.
Issues with traditional Advisors
However this whole model has three major flaws-
- Product Push by advisors/ biased advice - In order to make more commissions and revenue, advisors at times may advice customer a product which is either not right for him or suggest to buy in a quantity which is more than what is required. This has happened in past specifically in Insurance products and fixed deposits.
- Good advice limited to wealthy segment of customers - Most of the advisors typically work a structure where there is the lot of costs of running a business , like rent, salaries to sales people, traveling costs to customer’s place. Good advisors charge a fixed fee from customers or advice only those customers who invest minimum threshold of wealth through them. This has limited true advice to only wealthy customer segment with mass affluent segment dependent on agents.
- Huge transaction charge to customer - Agents working for the commission may push products where they make a lot of commissions without safeguarding the interest of the investor. Erstwhile Unit linked insurance plans is such an example.
- Same advice to each customer - Agents may give the same advice to each customer due to lack of knowledge or preferred commissions.
Welcome Robo Advisory
When a personal computer is used to give solutions it is called robo advisor. It’s done with the help of pre-defined programs fed in a computer, where the user can ask any kind of financial query from computer’s brain and get advice which is more customized and unbiased. Everybody of us has been using robotic solutions in small forms. A simple computerized calculator giving maturity amount of a deposit is also a form of robo advisors.
With the advent of more sophisticated computers and programing capability, now the computer can give solutions from Tax calculation to investment advice. Some of the advantages of Robo advisory are-
- Intelligent investing - Generally investors are emotional and take financial decisions which are based on their whims and fancies. This sometimes results in a poor outcome of the investment. As computers work on pre-defined rules and robotic investing presents un-emotional solutions.
- Unbiased Advice - Agents or advisors due to their lack of knowledge or goal to earn higher commissions, may give solutions which are biased. This doesn’t happen in robo advisory as there is no human interference.
- Back-tested results - One gets back tested solutions, which give them investor better chances to meet the goals of investment.
- Customized advisory - In the traditional equity research, there is not personalization of research possible, due to the high cost and an impossibility to make the huge calculations. However, in robotic advisory, one can get customize advice as per personal profile, as computers are capable of making difficult calculations.
AdviseSure as Robo-advisors
In the USA, robo advisors have already taken huge lead in wealth management industry with a lot of retail investors started investing their money with robo advisors due to the benefit of transparent and low charges solution.
In India, robo advisors are recent phenomena and getting lot of traction. AdviseSure is Robo-advisor providing solutions to a retail investor at very low fees of Rs 365 per annum. Solution range from investing in Mutual funds, Shares, Fixed deposits, Bond, Tax saving schemes etc. The user has to initially enter basic personal details and undergo a questionnaire. Post that, the user can get unbiased and independent advice for any financial solution. Presently we are providing following solutions.
- Lump Sum investing
- Regular Savings and SIP
- Tax saving plan
- Filing income tax return
- Finding right insurance