Robo Advice for your Wealth Management

 

At present, robo advice is ideally suited for long-term wealth management needs. Good robo advice solutions exist in several developed countries, including Australia.

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?".

Robo advice and the downside risk

Factoring-in the downside risk is an essential part of portfolio construction and investment management, and I am 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.

Robo-advisors versus independent 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.