Race Against The Machines: Are Robo-Advisors Better Than Your Wealth Manager?

Investing

Race Against The Machines: Are Robo-Advisors Better Than Your Wealth Manager?

Robo-advisors are cheaper, faster, and less prone to mistakes – so, they are more effective in managing your wealth … or are they?

Written by Xiou Ann Lim on 31 July 2017

For some time now, robo-advisors have been touted as disruptors to the multi-billion-dollar wealth management industry. These platforms that employ algorithms to manage your money are said to be cheaper, faster, and less prone to mistakes. Taking into consideration your financial goals, risk appetite, and how much you’re investing – they can prescribe an asset allocation that suits your profile.

However, robo-advisors are not without weaknesses – naysayers often criticise these platforms for lacking the human touch that is the bedrock of the wealth management industry. Even then, robo-advisors are forecast to take up about 10% of assets under management (AUM) globally by 2020.

But before you jump on the bandwagon, consider the following pros and cons.

Pros

01.

Lower fees

On average, financial advisors charge an annual fee of about 1% – but robo-advisory fees may be as low as 0.25%. Although it may seem like a negligible difference at first, it really isn’t if you’re considering a large account size. Either way, it’s best to keep your costs to a minimum – that way, you can maximise your returns.

02.

Lower account minimums

Wealth management firms and private banks are constantly increasing the minimum threshold that is required of account holders. In a few instances in just this past year alone, some private banks have actually doubled the entry level of their high-end wealth management services. This leaves investors who do not meet the criteria out in the cold.

However, this has started to change with robo-advisors in the picture now. Not only do they have lower account minimums, some don’t have one at all – which makes wealth management advice accessible to all.

03.

Convenient

Robo-advisory is becoming popular for one of the same reasons why people enjoy shopping online – it is convenient. Although it is helpful to meet your relationship manager in person to discuss your finances, that can take up considerable time.

Compare that to receiving investment advice and ideas on your laptop, tablet or mobile phone – even when you’re on the go or on holiday – engaging the services of a robo-advisor that never goes away on leave and is available to you 24-7 can be pretty convenient.

Cons

01.

Robo-advisors may not have the full picture

Robo-advisors have visibility of your assets that are on their platform and nothing beyond that. This means they will not take into account your pension fund, investments elsewhere, other assets you own or your spending habits.

Apart from that, robo-advisors are also incapable of taking into consideration other goals such as succession planning – which a relationship manager may be able to help with.

02.

Lacking the human touch

Although this can be an advantage (see Point 3 above), it is also a disadvantage if you’re expecting something more bespoke from your wealth manager or if you enjoy the interaction you have when considering your investments.

Private banks and other types of wealth managers sometimes offer fringe services such as succession planning and philanthropy – which your robo-advisor will not be able to assist with.

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