What is Robo Advice?

 

What is Robo Advice?

By Quentin Griffiths

Basic Definition

Robo advice is a term used to describe a web based tool that gives investment advice, based on your goals, appetite for risk, social conscience and interests.  A robo advice platform is designed to actively manage and build a diversified portfolio, make trades to keep on track and perhaps even reduce your tax bill through loss harvesting.  

 

Who would use robo advice?

The idea behind Robo Advice is to compliment a Financial Adviser, allowing people to invest money  without having to meet a minimum investment requirement of lets say $250 k+.  By developing an automated investment platform, Robo advice can remove the minimum investment requirement, appealing to the do it yourself traders, trading novices or more importantly the general public.  

Robo advice also offers a much lower fee structure, due to the amount of automation and low amount of human touch required by the financial institutes offering the service.

 

Will Robo replace financial advisers?

Robo advice is unlikely to replace Financial Advisers, as they generally work with high net worth clients who prefer a more personal touch when investing large sums of money.  The opportunity that Robo advice creates for large fund managers, is a way to work with every day New Zealanders who do not have a spare $250k to invest, but are interested in investing and over time may build up a handsome sum of money in their Robo account.  Think of it as an complimentary offering to a Kiwisaver scheme.

 

What are the benefits of using robo advisers?

For DIY investors or novice traders, the biggest advantage of a Robo advice platform is to avoid costly trading mistakes created by our gut feeling or emotional decisions. 

Robo advice platforms are generally built or driven by financial institutes who build into the algorithms, years of trading knowledge, research and data to ensure that the best decisions are made when investing.

For a user, there is also a reduction in stress as many platforms are automated meaning you do not have to actively monitor the share price, news articles or place trades.

 

Is Robo advice allowed in nz?

Yes.  The Financial Market Authority is now releasing exemptions to financial institutes who wish to implement a Robo advice platform. 

 

Can you trust robo advice platforms?

Robo advice is not a new concept globally.  In a range of markets Robo advice platforms have been around for a number of years.  Figure 1 represents the amount of Funds Under Management (FUM) from existing Robo Advice platforms.  Figure 2 represents the % of all FUM in each country which are managed through Robo Advice.

 Figure 1 - Funds Under Management by existing Robo Advice platforms.  Source: Investor Junkie

Figure 1 - Funds Under Management by existing Robo Advice platforms.  Source: Investor Junkie

 

 

 

 

 Figure 2 - The amount of Funds Under Management in each country which have been invested by a Robo Platform.  Source CBINSIGHTS

Figure 2 - The amount of Funds Under Management in each country which have been invested by a Robo Platform.  Source CBINSIGHTS

 

How is youdo involved with robo?

YouDo are a bespoke software firm.  We work with wealth advisers/ fund managers to bring their ideas to life.

If you are a fund manager who wants to add a Robo advice platform to your financial offering, come talk to us today.