Would You Take Financial Advice from a Robot?

Would You Take Financial Advice from a Robot?
Would You Take Financial Advice from a Robot?

In the complex world of bonds, unit trusts, shares and exchange traded funds, investing your hard earned cash is often a bit of a lottery.  If you’re a mid to low worth individual who doesn’t have many assets to talk of, recruiting the services of a personal wealth manager is usually beyond your means.

That leaves you with two options.  You can hide any excess cash under the mattress for a rainy day or you can visit a South Africa facing online casino in the hopes you’ll double or even treble your gambling outlay!

There is, however, one other alternative… and it’s a pretty smart one at that.  Instead of paying the big bucks for the services of a financial adviser – if you can actually find one who is prepared to spend time and effort managing your meagre savings – you can turn to the low cost consistency of algorithm-based robo-advice!

What is Robo-Advice?

Robo-advice is an on-demand investment platform that uses mathematical algorithms to develop and manage a long-term financial plan based on your individual circumstances.  All you have to do is access the online platform of your choice, register an account and enter your risk appetite, investment time horizon and the amount of money you want to invest.  Robo-advice software analyses your situation, dips into big data to find suitable up to date investment products and automatically allocates, manages and maximises your assets… it’s as easy as that!.

Spawned by the 2008 Market Meltdown

Although robo-advice may appear to be a relatively new concept, it’s been around for more than a decade.   It was first launched in the USA during the 2008 global financial crisis as a web-based interface used by financial managers to manage their client’s assets.  Since then, the intelligent automated investment management solution has become a popular standalone service.  In 2015 robo-advisors were managing more than $60 billion in global assets.

By 2020 it’s estimated that a whopping $2 trillion of assets under management (AUM) world-wide will be administered by robo-advice tools.

Who Should Consider Using Robo-Advice?

The key market for robo-advice services is obviously digitally savvy investors who don’t have a problem sharing data online.  They are also mid to low worth individuals who simply cannot afford the fees of traditional wealth managers.  As a result, robo-advice is currently targeting South Africans between the ages of 25 and 40 years of age, a demographic more commonly known as Millennials.  If you are a young to middle aged South African who has limited resources but wants expert advice on savings products, pension options and general wealth planning, robo-advice is tailor-made for you.

High Net Worth Individuals Exhibit the Highest Adoption Rate

What is interesting is in the USA and UK it’s not only cash-strapped investors who are turning to the on-demand financial model.  High net worth individuals are seeking the consistency and convenience of robo-advice.  According to recent research up to 70 percent of wealthy folk are of the view that online automated investment tools can help their wealth managers provide better advice and enhance their decision making.  In fact it is the so-called ‘fat cats’ who are really embracing A1 optimised financial management strategies.  The current adoption rate of robo-advice among the well-heeled investment segment is more than 40 percent compared to just 17 percent of the masses!

What are the Key Benefits of Robo-Advice Services?

Robo-advice is effectively democratising the wealth management sector by making financial planning and asset management cheaper and more accessible.   It’s a new generation solution for new generation investors, notwithstanding age, income or personal wealth.  The on-demand web- and app-based solution is a great way to engage large volumes of investors who would otherwise fall through the cracks… simply because their investment portfolios are not sufficiently high-value to attract the attention of human advisers.

With robo-advice you have the benefit of:

  • Advice and products from multiple experts
  • A convenient  and friendly user experience
  • Access to real-time information anywhere and at any time
  • Frequent financial product upgrades
  • Low cost asset management

These automated investment tools have the power to reach and support millions of South Africans in planning their financial futures.  They are cheap, easy to use and double as intelligent learning tools that can help consumers understand how to manage their own finances.

Would You Allow a Robot to Manage Your Money?

The big question is would you allow a robot to advise you on how to invest your money?  Proponents of robo-advice will tell you that you are much better off leaving your assets in the ‘hands’ of software enabled tools.  You are ensured of getting sound financial advice faster and in an incomparably convenient way, machine learning will always provide more accurate and consistent advice than humans and there’s absolutely no risk of poor judgement, behavioural bias or human error affecting the burgeoning growth of your investment portfolio!

Where to Get Robo-Advice for South Africans?

South Africans can currently tap into instant investment advice and software enabled asset management services on five online investment platforms.  You’ll find they have slightly different fee structures and access to financial products unique to each platform.  As a tech savvy South African you can start your financial planning at one of these robo-advisor partners right away:

  • Sygnia RoboAdvisor
  • Bizank
  • SmartRand
  • OutVest
  • ItransactGO