PROS AND CONS OF ROBO ADVISORS

Managing finances is an important and inevitable part of human life. This is because everybody needs money for fulfilling basic needs. Generally, people need help with money management. This becomes all the more important if people have a large number of assets in their kitty.

They generally have an investment portfolio where they invest a fixed amount of money set aside for different purposes. Till recently, this was done by a human investor but now with the advent of artificial intelligence, it has become possible for us to use a robo advisor for the same.

Here we discuss what is a robo advisor and its pros and cons. Finally, we try to analyze how it works and whether it can replace a human advisor. After reading this article, you will be in a better position to decide which course of action will help you select the best robo advisor to execute your work in the best possible way.

So let us now start by explaining what a robo advisor is.

WHAT IS A ROBO ADVISOR?

A robo advisor is an app that uses artificial intelligence to give you an automated investment portfolio where details are given about the best places to invest your money. It does this by using computerized algorithms that can give you the best deal as far as investing money is concerned. It is generally free or comes at a nominal rate that makes it extremely popular.

HOW DOES IT WORK?

As mentioned before, a robo advisor is designed by engineers who have fed in complex algorithms to help you get the best deal available for your investment portfolio. As the name suggests, it has the qualities of a robot that can gauge the gravity of the circumstances present and can analyze each and every situation to your advantage. In this way, it makes for a lucrative addition to your list of apps that can help you achieve exactly what you want.

CAN IT REPLACE A HUMAN ADVISOR?

Currently, the qualities of a robo advisor have been compared to those of human financial advisors. This has led to questions arising as to whether it can replace a human advisor completely or should it be used only in conjunction with a human advisor.

Let us now proceed to discuss the pros and cons of human advisors.

PROS OF ROBO ADVISORS

1.     Low Fees And Investment

A human advisor is very expensive as they charge a minimum of 1 percent of the entire financial transaction. The rates can even be higher based on the expertise and experience of the human financial advisor. On the other hand, a robo advisor is generally free while some of them might a nominal rate that comes in very handy for individuals and small businesses that have a tight budget that needs to be followed.

2.     Remove Human Bias And Emotion

Human advisors can be swayed by biases, opinions and even emotions that can jeopardize the decision-making process of money management. This is because after all they are human beings and it is natural for the human mind to be subject to such stimuli. On the other hand, Robo advisors are computer generated apps that are free from such human discrepancies. Hence, They are able to remove human bias and emotions that are present in human beings. This makes them more logical and worthwhile.

3.     Algorithms That Have Won The Nobel Prize

The algorithms that are used in robo apps have been designed by Nobel Prize winners of Economics. They include the 1990 winner Harry Markowitz and even 2013 winners Fama and Shiller who have taken great strides in developing sound investment decisions that are used in these robo advisor apps.

4.     Help Save Money

Using robo advisor apps also helps you save a considerable amount of money that can be safely used for other purposes. This is because they are extremely cost-effective and need to be embraced wholeheartedly.

5.     Supplements A Human Advisor’s Work

In modern times, people have started using the robo advisor in conjunction with the human advisor so that they complement and supplement each other. This will make the best of man and machine come together so that you can have the best experience as an investor.

6.     Avoids Differences In Personality

It is observed that women use robo advisors more than men. This could be because most human financial advisors are men who are above 60. We can safely assume that most women don’t feel so comfortable discussing their personal finances with old men. Hence, these differences in personality can be avoided with robo advisors. This makes them a hit with young women.

7.     Expands The Market For Financial Advice

Robo advisors also help you expand the market for financial advice by providing expert services to people who would not have otherwise been able to afford the services of financial advisors. This is mainly due to their ubiquity and affordability that makes it possible for people of all walks of life to make the best use of them.

8.     Different Robo Advisors For Different Clients

People have multifarious needs and services and different robo advisors are present for different kinds of clients. This enables them to pick and choose from the varied kinds of services that they expect.

9.     Minimum Balances Are Much Lower

Using robo advisors permanently can help in managing your portfolio for the best effects. Their minimum balances for recharge are also much lower that makes them easy for all time use.

CONS OF ROBO ADVISORS

1.     Not Personalized

A human financial advisor gives very personalized information that is customized according to the client. This is not the case with robo advisors who don’t have a human touch.

2.     Don’t Reflect Your Overall Financial Situation

Robo advisor apps don’t reflect on your overall financial situation as they don’t have the ability to gauge the situation from different angles. This makes them unsuitable for use in circumstances that entail a high amount of risk.

3.     Give A False View Of Human Advisors’ Price Rates

People get the wrong idea that human advisors charge a large amount of money for their services. This is mainly because robo advisors give such false views of human advisors’ price rates so as to promote their services and cut out the competition.

4.     No Personal Advice Is Given

Robo advisor apps don’t have the ability to give personal advice as they are not human beings. This makes it difficult for people who need guidance and counseling.

5.     Falsely Claim In Helping Newbies

Robo advisor apps falsely claim in helping newbies for the simple reason that they are free or cost-effective. This makes them extremely lucrative for youngsters who are taking the first step in managing their finances on their own. But this does not mean that they shouldn’t try out human investors as well.

6.     No Face-to-Face Interaction

Robo advisors don’t have face-to-face interaction that is provided by human advisors. This becomes especially important in cases of panic attacks where people fear of losing large amounts of money and need counseling.

THE ROAD TO THE FUTURE

From the above, it is clear that both robo and human advisors have positive qualities that need to be utilized in their entirety. This can only be possible if they are both used in conjunction with each other. In this way, they can complement and supplement each other and will pave a new road to the future.

CONCLUSION

So we can conclude that robo advisors have many pros and cons and one should weigh the options effectively before using them. This is how we can harness the best use of modern technology that helps improve our lives in the best possible way.

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This article was written by John Foster.