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In the beginning of November BMO bank announced a plan to launch robo-advisory services in their branches, providing online portfolio assessment and management for clients. According to BMO, their intention is to implement the changes by the end of 2015.
Robo-advising is becoming an increasingly prevalent topic of discussion, raising the question: what does emergence of robo-advisers mean for investors and the financial services industry?
Robotic advisers are a new type of automated financial advisers that are gradually becoming more available to the general public. Robo-advisers help investors with their portfolio management: they are designed to analyze the situation through client surveys and suggest investment strategies that would work best for that situation. This software-based assistance aims to create a clear, transparent representation of the available options, fees and comparative performance data.
Robo-advising is growing rapidly in Canada, with ten independent platforms currently available. With such rapid growth, it’s important to consider the potential benefits and drawbacks of being advised by the software.
There are several advantages of robo-advising:
At the same time, robotic advisers also have noted disadvantages compared to regular advisers:
The emergence of robo-advisers may, in fact, change the investment industry – but it doesn’t mean the changes will destroy the livelihood of regular advisers. In fact, many advisers remain optimistic, saying that automation does not pose a threat – it will be of help. Becky Wong, CFP, an independent financial planner with over twenty years of experience noted that
“while there is certainly a market for robo-advisers, (primarily younger clients who tend to be DIYers), there are still clients require face-to-face interaction and personalized advice in order to be comfortable making financial decisions. However, I do like the idea of robo-advisers introducing a larger number of consumers to the benefits of financial planning.”
Robotic software and other technological advances can benefit advisers along with users. Technologies can help with data and risk assessment, while in-person advisers maintain relationships with the clients and provide advice based on the clients’ goals.
Secondly, robo-advisers will push human advisers to be more efficient because of perceived competition. For instance, advisers are likely to become more effective with communication, such as offering ongoing online support or longer customer service hours. Robo-advisers can also diminish the amount of scams in advising, and encourage advisers to focus on the services they provide, rather than the products they want to sell to the client.
Thirdly, new technologies can, in fact, increase the number of investors in general. Robo-advisers can attract people who were previously not able to afford advising. Potentially, when they grow their revenue, they could choose to switch to in-person advising for more complex assessments.
We have yet to see full effect robotic advisers will have on the financial services industry. It does seem that robo-advisers offer various benefits to the clients; however, they still have several drawbacks compared to in-person advising. The choice of advising depends on the person’s goals and preferences. If clients are comfortable with technology, willing and able to align their investment and life goals, and want to make smaller investments, a robo-adviser is a more suitable choice for them. If, on the other hand, they prefer human interaction, are investing large amounts of money or have a complex financial situation, and want to be strategic with their money, in-person investing is a more suitable choice.
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