Robo-Advisor is a fintech application to wealth and asset management. This service manages assets and risks using artificial-intelligence (AI) and algorithms without the use of a live financial advisor. Algorithms are typically used to place investors into various portfolios based on their individual risk appetite and investment priorities through an automated process.
Robo-Advisor Asset Management Process:
- Diagnosis of investor’s risk appetite through several questions
- Investor sets preferences in terms of investment, investment amount and rate of return
- Robo-Advisor customizes a portfolio based on investor’s priorities and goals
- Robo-Advisor makes adjustments on portfolio based on through constant monitoring
Elements of Robo-Advisors:
1) Lower commissions and fees
Commission paid towards the Robo-Advisor can start at 0.5% for starter portfolios, which is less than half of the price charged by conventional brokers. Through this, asset management services can be accessed by everyday individuals, which were previously more accessible to only high net worth individuals.
2) High accessibility
Traditionally, face-to-face advisory services were not easily accessible for people. By using a Robo-Advisor, customers can open their accounts and get financial advice on their own convenience. Besides, since services are provided through various platforms (mobile, web), it saves customers the hassle of having to see an advisor physically.
3) Investment Amount
Wealthfront, a US-based Robo-Advisor, has lowered their account minimum from $5,000 to $500. This is aimed towards younger investors who are more sensitive to prices and have limited investment assets.
Robo-Advisors in Korea
KClavis Investment Advisory and Black Numbers Investment Advisory have been actively incorporating fintech into the investment advisory industry in Korea. Therefore, they introduced the ‘Robo-Advisor’. Through this service, they have managed to collect trillions of pieces of data on investor actions on exchange traded funds (ETF).
When an investor decides on an investment amount and period based on this information, the Robo-Advisor is able to establish a diversified investment plan in a flash, taking care of buying and selling shares and funds such as ETF.
Kakao ‘Finance-bot service’
Kakao has also launched a ‘Finance-bot’ service. Financial advice is offered through their chat app which includes providing information on their asset status as well as delivery product and investment information.
‘Finance-Bot’ is artificial-intelligence system which is able to perform checks the customer’s financial status, provide product recommendations as well as personalised financial advice. Investors can opt to receive financial advice through Kakao Talk, the chat application under Kakao. The robot is able to respond to simple questions within 24 hours and also offers to connect to financial advisors for more complex cases.
Robo-Advisor services is faced with less resistance from the younger generation who are more tech-savvy. However, people from older generations are unwilling to leave their money in the hands of a machine.
There are many benefits associated with using Robo-Advisory services, especially for those who would like to invest but have limited time to do so, as highlighted above.
We believe that there will be an increasing number of customer that will be attracted to these services. This is mainly because Robo-Advisors offer lower commissions and fees compared to existing services available in the market.
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