Science-fiction writers have long been predicting that robots will take over the world, and those predictions could soon come true in the lucrative investment advice market.
Recent years have seen the emergence of digital financial advisors – known as robo advisors – which take advantage of modern technology to offer low-cost investment management services. According to a recent Legg Mason Global Investment Survey, Singapore leads the world in terms of the proportion of people using the services of a financial advisor – with an impressive 61 per cent of respondents consulting human financial advisors and many are open to robo-guidance. In this guide, we explain how these robo advisors work and how can you compare the services offered by different providers.
Robo advisors in Singapore
What is a robo advisor?
A robo advisor performs many of the same services as a traditional financial advisor. Using complex algorithms and technology, these digital advisors provide financial plans to consumers and automatically manage their investments. The basic operation of these automated financial advice services is quite simple.
Once you provide details of your investment goals, investment timeframe and appetite for risk, the robo advice service generates a recommended investment portfolio, which is usually based on Exchange Traded Funds (ETFs). Once you’ve invested your money, the robo advisor manages your portfolio and re-balances it whenever necessary to ensure it remains in line with your risk tolerance levels.
Proponents of robo advisors say that instead of being influenced by emotion when making trades, digital advisors use algorithms and mathematical models to determine the right asset allocations for investors. They’re also much cheaper than having a traditional financial advisor actively manage your investments, with robo advice available for as little as one-tenth of the cost of receiving advice the old-fashioned way.
Digital advice services are based more on building and maintaining a portfolio than providing strategic advice, so most analysts predict that there will still be a place for traditional financial advisors in the future – in fact, the advantages the technology presents could be very useful tools for financial advisors. However, for the 80% of the population who either cannot afford or are unwilling to pay the fees to receive traditional financial advice, robo advisors offer a convenient and affordable alternative.
The rise of robo advice
The robo advice revolution started in the US a few years ago, and since then companies such as Betterment, FutureAdvisor and Wealthfront have enjoyed enormous success. Both Betterment and Wealthfront each manage more than $2.6 billion of customer assets, with the market expected to continue to rapidly expand in coming years.
In fact, research by KPMG has predicted that by the year 2020, robo advisors will manage around USD$2.2 trillion worth of assets. In Singapore, the robo advice sector is still in its infancy. We’ve profiled and compared the established players below, with several more providers expected to launch their own robo advice services in the next 12 months.
The big banks are also moving into the robo advice sector. Last year, OCBC launched a robo-advisory service for accredited investors to invest, monitor and manage their portfolios of stocks and ETFs, through an automated, algorithm-based formula. The online platform offers clients direct advice on the regular rebalancing and optimisation of their investments portfolios without going through a relationship manager.