Article

Pros and cons using robo-advisors

16 Aug 2018

With technology headed towards automation in the 21st century, we too are moving towards a more robo-oriented lifestyle. Now, more and more analytical tasks are using artificial intelligence (AI) and machine learning to run themselves. This stands true for financial advisory as well.

One such implementation of artificial intelligence is robo-advisory, where you can make investments into assets researched and analyzed by robots. Generally supervised by an investment manager, robo-advisory uses a software to calculate complex algorithms to generate results.

How do robo-advisors work?

All you need to do here is enter your financial goals and requirements as well as your risk appetite. Based on your inputs, robo-advisors run algorithms and obtain the positions and securities in which you should invest as well as the duration of the investments.

Robo-advisors are 100% analysis-based and do not rely on any gut feeling or emotion-based decision-making.

Pros of using robo-advisory

  • Completely research-based: Robo-advisors are 100% research-based. They take a number of parameters into account before concluding which security you should invest in. Since they are emotion-free, the prospective losses caused by the emotions of human advisor are averted.
  • Uses extensive analysis: Robo-advisors analyze securities under different parameters and scenarios. This involves looking into multiple dimensions, which is often left out when the analysis is made manually. Complex algorithms ensure better precision in terms of decision-making.
  • Lower fees: Maintaining a software is quite cheaper as compared to hiring an experienced fund manager. This means that robo-advisors charge a lower fee for their services and you end up saving some money.
  • Offer diverse service: Robo-advisors offer diverse services that can cater to a large group of investors. This makes them a good go-to option for consulting.

Cons of using robo-advisors for investment

  • Not personalized in most cases: Although robo-advisors cater to a larger group of investors, their services cannot be personalized. This means you might not get a tailor-made consultancy as you would expect, which you might otherwise get while dealing with human advisors.
  • Market sentiment is not taken into account: As we know, the market is largely driven on sentiments; a robo-advisor might not be able to diagnose fluctuations caused due to market sentiments and thus, will not be able to provide the best of the results as expected.
  • No interactions: No personal interaction is involved when your funds are handled by robo-advisors. This often reduces the customers’ satisfaction and they might feel a lower quality experience as compared with.
  • Don’t guarantee performance: Even after extensive and thorough analysis and research, robo-advisors do not guarantee performance. They still have a margin for risk as human advisors, which puts them in the same category in terms of risk involved.
Robo-advisors may do a satisfactory job of providing you with consultation for investing but they still lack in quite a few areas. There is a visible need and scope of human intervention in the present state of this technology. Having said that, robo-advisors are learning with the help of AI and you might soon get to see them assist you in everyday trading. But while this happens, consider your human advisor as your best friend, but always take a second opinion before trading in the markets.  

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Pros and cons using robo-advisors

16 Aug 2018

With technology headed towards automation in the 21st century, we too are moving towards a more robo-oriented lifestyle. Now, more and more analytical tasks are using artificial intelligence (AI) and machine learning to run themselves. This stands true for financial advisory as well.

One such implementation of artificial intelligence is robo-advisory, where you can make investments into assets researched and analyzed by robots. Generally supervised by an investment manager, robo-advisory uses a software to calculate complex algorithms to generate results.

How do robo-advisors work?

All you need to do here is enter your financial goals and requirements as well as your risk appetite. Based on your inputs, robo-advisors run algorithms and obtain the positions and securities in which you should invest as well as the duration of the investments.

Robo-advisors are 100% analysis-based and do not rely on any gut feeling or emotion-based decision-making.

Pros of using robo-advisory

  • Completely research-based: Robo-advisors are 100% research-based. They take a number of parameters into account before concluding which security you should invest in. Since they are emotion-free, the prospective losses caused by the emotions of human advisor are averted.
  • Uses extensive analysis: Robo-advisors analyze securities under different parameters and scenarios. This involves looking into multiple dimensions, which is often left out when the analysis is made manually. Complex algorithms ensure better precision in terms of decision-making.
  • Lower fees: Maintaining a software is quite cheaper as compared to hiring an experienced fund manager. This means that robo-advisors charge a lower fee for their services and you end up saving some money.
  • Offer diverse service: Robo-advisors offer diverse services that can cater to a large group of investors. This makes them a good go-to option for consulting.

Cons of using robo-advisors for investment

  • Not personalized in most cases: Although robo-advisors cater to a larger group of investors, their services cannot be personalized. This means you might not get a tailor-made consultancy as you would expect, which you might otherwise get while dealing with human advisors.
  • Market sentiment is not taken into account: As we know, the market is largely driven on sentiments; a robo-advisor might not be able to diagnose fluctuations caused due to market sentiments and thus, will not be able to provide the best of the results as expected.
  • No interactions: No personal interaction is involved when your funds are handled by robo-advisors. This often reduces the customers’ satisfaction and they might feel a lower quality experience as compared with.
  • Don’t guarantee performance: Even after extensive and thorough analysis and research, robo-advisors do not guarantee performance. They still have a margin for risk as human advisors, which puts them in the same category in terms of risk involved.
Robo-advisors may do a satisfactory job of providing you with consultation for investing but they still lack in quite a few areas. There is a visible need and scope of human intervention in the present state of this technology. Having said that, robo-advisors are learning with the help of AI and you might soon get to see them assist you in everyday trading. But while this happens, consider your human advisor as your best friend, but always take a second opinion before trading in the markets.