Question: Would you trust a robot as a financial advisor? The question is not far-fetched. Today, there are a large number of financial management companies that use robots, also known as Robo Advisors, to advise and manage investors’ accounts.
The largest of these companies by assets are located in the United States, Great Britain, and Canada and include:
- The vanguard group
- Charles Schwab Corporation
- Improvement
- Wealthfront
- Personal capital
- Nutmeg
- Simple wealth
- E-commerce
- Financial ally
Again, this list represents the largest financial management companies. Today, there are many companies that have these advisers.
What is a Theft Advisor?
To understand the concept of robots providing investment advice, you need to know exactly what Robo Advisors are.
First introduced in 2008 during the financial crisis, these advisers are financial advisors who offer financial advice or investment management online with little or no human intervention. Their advice is based on mathematical rules or algorithms that are operated by software that manages and improves a client’s assets. The Theft Consultant commonly allocates a client’s assets based on risk preferences and desired target return. These robots can incorporate assets into a number of investments, including stocks, bonds, futures, commodities, and real estate. However, in most cases, resources are directed to portfolios of exchange-traded funds (ETFs). An ETF is a transferable security that tracks an index, commodity, bonds, or a basket of assets such as an index fund and is traded like common stocks on a stock exchange. Customers can choose to participate passively or actively in the process.
How Robo Advisors Work
When a human customer first encounters a Robot Advisor, they are asked to provide information about their current financial situation and future goals. Robo Advisor takes this data and calculates where the customer should invest their money. The suggestions are based on a given level of market risk in order to achieve the maximum return for a given risk.
These machines, like IBM’s Watson, can analyze the personality of a human customer to determine how their risk-taking behavior influences financial decisions. The machine uses personality insights to determine a person’s temperament from the available content that the customer has provided. The inferred personality is then used to determine the customer’s risk tendency and helps the machine select recommendations.
Who uses Robo Advisors?
Investors using Robot Consultants include:
- Investment Advisers and Registered Financial Advisors
- Millennials
- Retired
- People with high net worth
Registered investment and financial advisers benefit from Robo Advisors by streamlining investment management and financial advice, making the customer service process more efficient. The human advisor can focus on tasks that a robot cannot perform.
Millennials love to use robot advisors because they have been educated in technology and it is an important element of their lifestyle. Millennials also like this type of investment because it is less expensive than relying on a human advisor, and they often don’t have the money to capture the attention of a human advisor.
Retirees will be a growing segment of this group because more and more investors approaching retirement age trust these machines and will therefore continue to use them when they retire.
High net worth individuals rely on Robo Advisors for a portion of their wealth while continuing to use human advisers.
However, in the long term, all investors will use Robo Advisors. Robo Advisors is expected to manage up to 10 percent of all global assets under management (AUM) by 2020. That equates to $ 8 trillion.
In fact, as you can see, we are witnessing a whole new world in which machines that can learn will touch almost every element of our lives.