What is a robo advisor? Why is everyone and their aunt talking about these things? When it comes to financial markets and trading, every third sentence mentions a robo advisor. The website Whatis.techtarget defines a robo advisor as an artificial intelligence (AI) driven virtual financial advisor. Robo-advisors are a type of expert system optimized for financial services. It is a software robot that is not visible to us. It is similar to communicating with a mobile application.
A robo advisor is basically a financial investing advisor. It however cannot take any emotions into account, .i.e. it does not get involved in any personal aspects like taxes, retirement funds or estate planning. Examples of robo advisors are – Asset Builder, Betterment, Covestor, Flexscore, etc. So why is everyone talking about them? The reason is simple – SIMPLICITY!
Getting hold of a trustworthy financial planner who will always give you a sound advice is difficult. Most people tend to change their advisors every few years or even months. With a robo advisor, forecasting the value of your investments is relatively easy. These advisors are easy to use and are statistically sound. A robo advisor is most suitable for people who are still learning the ropes of investing in the market. At this stage people are most comfortable in investing in low risk low return type of investments, which are not well known to all investors.
This is a boon mainly for married couples who may sometimes have a tough time agreeing on same things. A robo advisor may not always be able to predict the exact Return on an Investment, but it surely is able to point investors in the right direction. With a mobile application/ website a person in closer to his finances and financial information than he would normally be with a financial planner. This makes him more knowledgeable and financially disciplined.
Robo advisors are not very popular in India, but just imagine being able to plan the next 20 – 30 years of your life on a mobile app. That is truly giving power in the hands of the masses. Such an industry is bound to be worth trillions of dollars and shall propel those in the know of things far ahead of others.