Robo Advice for your Wealth Management

Robo advice or digital advice is ideally suited for long-term wealth management needs. Good robo advice solutions exist in several developed countries, including Australia. Investors across the world have started to benefit from the value proposition of a robo advisory firm.

Also refer to our 'What is the difference between robo advice, digital advice, and automated advice?' knowledge resource.

Below, we discuss some aspects of robo advice for your wealth management. Also refer to our 'robo advice for SMSF' knowledge resource.

Ultimate goal of a robo-adviser

The ultimate goal of a robo-advice service should be what is also the actual expectation of a typical client — to provide the best long-term, risk-optimised returns to the client net-of-fees. This is what a typical client wants — "What is the return that I am going to enjoy in the long term for a specific portfolio risk that I am willing to take?".

In a nutshell, a robo-advice firm is all about "how well the firm is using tech to bring the best of investment management and personal finance to the client".

We provide our MDA service to a client as a robo advice service. To know about why a client should use our service, read our 'Why QuietGrowth' page.

Robo advice and the downside risk

Factoring-in the downside risk is an essential part of portfolio construction and investment management, and we are sure that credible robo-advisors deal with this.

As a client, if you are worried about the downside risk of your portfolio, then may be that portfolio is too risky for you. May be, your risk tolerance level is much lower, and you would need to opt for a less risky portfolio.

The key is you settling down for a portfolio such that you are comfortable with the inherent risk of that portfolio. In other words, you should be comfortable with the downside risk of the portfolio that you are opting for. Then you need to make sure that the returns of that portfolio are optimized for the risks of that portfolio.

This is what we at QuietGrowth do. We assess your risk tolerance and suggest an appropriate portfolio, so that you would not lose sleep on the downside risk for that portfolio.

Impact of robo-advisors on human financial advisors

Robo-advisors will make business hard for financial advisors with mediocre skills, and some jobs in this segment will be lost. However, financial advisors with superlative skills will survive (and may thrive) as they start to focus more on providing financial advisory services that are not provided by robo-advisors.

In fact, some traditional advisors might use the services of robo-advisors too while serving their clients. The profit margins of traditional advisors will definitely take a hit.

Another aspect to consider is that the biggest target market for most of the robo-advisors is the "unadvised" segment — those who do not have enough savings that would enable them to seek quality financial advice from a traditional advisor. So, the growth of the robo-advisors does not translate to immediate replacement of traditional advisors, because most of the clients of robo-advisors were never the existing clients of traditional advisors. Robo-advisors are playing the role of increasing the size of the pie, as of now.

Your money is not managed by robots

No robots work at QuietGrowth! Within the walls of a top-notch provider of digital investment management, such as ours, highly qualified experts will be involved in designing the algorithms for evaluating the risk tolerances of clients, in designing algorithms to provide personal financial advice and in designing the portfolios. The power of software is utilised in democratising this service by automating a lot of processes in investment management and financial advice, and by building interactive interfaces to engage clients at scale.

You get personal financial advice

We categorise a firm as a robo advisor if it provides digital investment management service including personal financial advice.

As we are aware, there is no regulatory rule in Australia that explicitly says that a financial services firm that does not offer 'personal financial advice' should not be called a robo advisor. However, we at QuietGrowth are of the view that it is prudent to avoid calling a financial services firm that does not offer 'personal financial advice' as a robo advisor, even if that firm provides 'general financial advice' digitally.

Also read the answers to the below questions:

Addresses the unmet advice needs of investors

A large number of Australian adults have unmet advice needs. The cost of high-quality financial advice can be prohibitive to most of them, and hence they do not avail the services of a traditional financial adviser. Digital advice is an apt option for these investors to address their unmet advice needs.

Robo advice and financial tools

For the benefit of a client, a robo advice firm can build important financial tools as part of its offering. These tools enrich the wealth management service to the client.

We at QuietGrowth provide our clients with the following online financial tools: Retirement Planner and Net Worth Calculator.

Robo advice is getting better

At present, robo advice is for long-term investment needs. The offering is becoming more intelligent, complex and effective with the deft use of technology and product design. In addition to this, many robo advice firms are working towards automating various other areas of wealth management, so that many frequently sought-after functions of a financial adviser are automated for the benefit of the clients.

About robo advice in MoneySmart

Read about what the MoneySmart website says about robo advice. The MoneySmart website is run by the Australian Securities and Investments Commission (ASIC). ASIC is an independent Australian government body that acts as Australia's corporate regulator.