A robo-advisor is software that offers investment advice to clients noted by Bahaa Abdul Hussein. The software is programmed such that it scans a customer profile and offers customized advice on investments. Robo advisors work with almost no human intervention. They use questionnaires to get data to create a customer profile. We look at the benefits of robo-advisors.
Robo-advisors – benefits
Using Robo-advisors is beneficial for both clients and the company offering this service. The vast benefits explain why the use of robo-advisors is increasing.
Automated systems that work 24/7
Robo-advisors have an algorithm that they follow to provide advice. They work automatically and do not need human intervention. A robo-advisor is available 24/7 ensuring convenience for customers.
Fees are lower
When you go to an investment advisor for advice you are interacting with a real human. The time of the advisor is valuable and hence financial advisors charge more. With a robo-advisor, the company does not incur any additional expense for each time the robo-advisor operates. There are only the initial expenses. This makes the use of robo-advisors less expensive. Businesses can pass on the benefits to customers and charge a lower fee.
Can determine risk levels easily
Robo-advisors usually start with a questionnaire where they collect data and ask specific questions to understand the customer. Based on the answers, the algorithm helps to determine the risk level of the customer. The robo-advisor would understand if the client is willing to accept risks or is risk-averse. Based on this, customized advice can be offered.
Carries out asset allocation
Based on the risk profile, the robo-advisor can carry out asset allocation efficiently. It decides how to allot funds in different assets. The robo-advisor thus helps the customer create a portfolio.
Easy to use
Customers need not be fluent in the use of software. The robo-advisor has a simple interface, and it is easy for most users to interact. The client gets the feel of interacting with a real advisor. They can access the robo-advisor though the company’s website or through an app on their mobile. The tool also offers portfolio management tools allowing customers to manage their portfolio easily.
Can help in tax harvesting
The robo-advisor can offer tax harvesting as a service. If selected, the robo-advisor would sell investments that are not doing well and get a loss. This capital loss would be tax-deductible allowing the customer to save money. It also helps in getting rid of bad investments from the portfolio.
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