OREANDA-NEWS. Aamod Gokhale says: “Thanks to the internet and social media, investors already have access to a lot of information. Online brokers already provide them with alternative channels and easy access to markets. But they are still dependent on the expertise of the institutions for financial/investment advice”.

“Robo-advisors now make that “expertise” available to customers at a fraction of the cost, at least for simpler products. At the retail customer/mass affluent level, robo-advisors can mimic the portfolio models of a traditional advisor, thus taking away the “expertise” argument that justified higher fees.”

Excerpts:

“As revealed in a recent Asia Pacific survey by Cognizant’s Center for Future of Work (“The Business Value of Trust”), customers trust digital start-ups more than their traditional rivals. Robo-advisors may not be an exception, as they are perceived to have no conflict of interest and not be prone to human errors and biases. They deliver far superior customer experience through their online offering. Their digital-native character, coupled with lower fees, makes them a potent disruptive force, setting new terms of engagement with customers that financial institutions need to adopt.

Robo-advisors score over traditional advisors on two important parameters: low cost and superior customer experience. Since robo-advisors are software programs, transaction costs are very low and drop further as they gain scale. At the same time, compared to the experience of dealing with traditional advisors, robo-advisors deliver digital-era customer experience, transparency and self-service without being burdened by the complexity of investment products, which is handled by software algorithms.

Trust is the most important currency in financial advice. Financial Advisors have done a relatively better job of earning and maintaining that trust, but the mathematical objectivity, low cost, and perceived lack of bias of robo-advisors/software algorithms make them attractive, especially to the younger generation and the retail and mass affluent segment.

In reality, good financial advisors more than just design a simple portfolio and execute rebalancing trades. They listen, educate, comfort, answer, explain and assure customers during the investment process, suggest the course for voluntary corporate actions, and address customer anxieties, especially during market turbulence. They not only protect customers’ interests, but also help them stay the course and follow investment discipline. Good financial advisors also go beyond simple investment advice to lifecycle financial planning, covering all financial needs.

In comparison, robo-advisors lack many capabilities aligned with the three pillars of professional investment management: access, expertise and trust. Customer service, trust and relationship are extremely important in this area, besides broader financial planning capabilities where good financial advisors will always have a competitive advantage over robo-advisors.

Financial advisors armed with robo-advisory technology combine the best of both worlds. They will automate portfolio modeling service delivery at the retail end, thus reducing costs of simple advisory transaction and pass on those benefits to customers for competitive pricing.”