This new money generating option will kill off money managers? Check the real deal

Robo advisory has transformed the way personal finance is managed. It is accompanied by multiple algorithms and. It has emerged as a niche differentiating proposition among prevailing traditional money managers. Many businesses offering personal finance services have found a presence in online platforms, with robo advisory as the core product during recent times.

Initially, automation in the financial sector was aimed to improve compliance and provide a transparent regime. However, the advancement of technology saw a structural automation in processes like basic customer compliance, to keep pace with growing business opportunity.

Further, it expanded to other aspects of financial planning, such as identification of risk capacity of investors, asset allocation based on life cycle and periodic evaluation of portfolios. Many service providers currently offer a hybrid model, which is a combination of machine and human decision.
 

Role of robo advisory
Robo advisory offers flexibility and convenience, as opposed to Independent Financial Advisors or any retail advisor in terms of corpus required for investment. It generally charges a lower fee for its services. It also assists investors in making a decision with accurate data through its algorithm set-up, which makes it more efficient than human intelligence. One important aspect of robo advisory is its efficiency to monitor big number or size of financial instruments, and thus offer a wide reach across different asset class.
 

Role of IFAs
Financial planning is a complex process. It involves tax optimisation and insurance planning, apart from investing and monitoring. Consumers’ goals or objectives vary in a number of ways. This requires an element of human support in order to align with the changing requirement. This aspect of financial guidance is not fully integrated with robo advisory, although it has the capability to guide through this decision.

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Hybrid model

The dynamic nature of the financial market which changes on a periodic basis and a need to make quick decisions to serve interests of consumers, has enabled both systems to progress and assist each other in wealth management. IFAs are no longer sceptical on the proposition offered by robo-advisory firms, nor can robo-advisory firms forgo the significance of IFAs to guide investors through different phases of the investment cycle. This ensures that technology and human expertise remain on par. 

By Dinesh Rohira, The writer is founder and CEO, 5nance.com