Robo-advice uses the expert input of investment professionals plus automation, algorithms and the internet to improve the accessibility of investment management to all Australians.
Robo-advisers now manage hundreds of billions of dollars world-wide, and can cost as little as 0.5 per cent (or $50 for a $10,000 account for advice, trading, rebalancing and reporting, with no hidden fees).
Robo-advice is the buzzword for investment advice and management that’s delivered online using automation and technology. Robo-advice doesn't involve actual robots (which can be a tad disappointing, especially if you were hoping C-3P0 would answer your phone call). Rather, robo-advice uses algorithms to drive its investment services.
Algorithms are already a part of almost every aspect of our lives, from our phones and computers to our traffic lights and even our toasters. They help some people find love, and are starting to help drive our cars. If they can do all this, it’s hardly surprising that this technology can help people invest and manage their money.
So, how can robots make you a better investor?
· Robots can control their emotions: When people let emotions drive their investment approach, they often make poor decisions, such as “panic selling” when markets drop before buying in again after prices have recovered. For long-term investors, patience and smart portfolio management are much more important than fear and panic-driven decisions. Robots stick to the rules that help eliminate poor, emotion-driven investor decisions.
· Robots are inexpensive: The cost of seeing a financial adviser or wealth manager can quickly eat into any gains your investment makes. Technology can automate parts of the process, saving money and keeping more cash in your account.
· Robots have human help behind the scenes: Algorithms don’t program themselves, and robo-advice certainly doesn’t replace human expertise. Advisory boards and investment committees make important decisions about how the “robot” invests and manages your money. Different robo-advisers also offer educational material, expert insights, live chat and phone support, which offer a human element to their services.
· You don’t need to be rich to use a robot: Hiring a financial adviser can mean you need $250,000 or even more in assets to access their services, which is hardly an amount most people have kicking around. Robo-advice levels the playing field and opens investment opportunities to far more people.
· Robots are smart: Robo-advisers use many of the same processes and resources as human advisers and planners for portfolio management, but deploy them more consistently and efficiently. Robo-advisers are expected to be managing a trillion dollars of assets in five years or less.
· Robots make things simple: A robo-adviser can simplify the task of setting up and monitoring your investment portfolio, eliminating much of the stress that comes with trying to build wealth while freeing up your time.
· Robots offer an awesome user experience: Robots can provide 24/7 elegant user interfaces that offer transparent reporting and clear analytics – no waiting for a quarterly report or confusing emails.
Technology is constantly changing the world – now it’s offering new ways for investors to get a professional investment plan and have better control of their finances at a cheaper price. Don’t fear the robots – when it comes to investment, at least, they’re definitely here to help.
Patrick (Pat) Garrett is the CEO at Six Park, an automated investment service or "robo-adviser".