What's the Deal with Robo Advisors?

If you follow any financial publications, there’s no doubt that you’ve seen the words “Robo Advisor” splashed across the pages. It’s flashy, it’s buzzy, but what exactly is the deal with Robo Advisors?

It’s easy for the media to glorify, or even glamorize the idea of Robo Advisors, but robo advisors marked the beginnings of the financial technology revolution, disrupting the industry as we knew it. And to be clear, a Robo Advisor is in no way a walking, talking cyborg accountant/robot. It’s simply “a service that uses highly specialized software to do the job of wealth managers or investment advisors.¹” When the term robo advisor first began to gain popularity, the software was touted as a way for the client to, “provide automated, algorithm-driven financial planning services with little to no human supervision. A typical robo-advisor collects information from clients about their financial situation and future goals through an online survey, and then uses that data to offer advice and/or automatically invest client assets.²” But as the rise of FinTech gains popularity, we’ll see that the financial professional is not in trouble of becoming extinct.

The reality is that FinTech has been creeping it’s way into the financial industry for years, not as a replacement for advisors and financial professionals, but as a tool that professionals can use to give the client top service. In fact many leading financial institutions use variations of their own robo advisors to give the client the best possible outcome for financial planning.

Sounds like a dream, right? But with any advancements in technology, there will always be concerns to be cautious of. According to Wealth Simple, “your choice of investments may be limited depending on the robo-advisor you use. At Wealthsimple, we use the following asset classes in our portfolios- stocks (Canadian, USA, Europe and emerging markets), fixed income and real estate. We believe they represent the best long-term sources of growth, income, and stability for investors.³” But of course, each financial institution has their own set of terms and limitations for the specific technology included in their offerings.

Ultimately, the beauty of a Robo Advisor is that it’s available to essentially everyone. No longer is the everyday person in the dark about their financial future. The power of financial freedom is with the client, who can obtain more information about banking, markets, and investing than ever before.

Resources

1. https://www.wealthsimple.com/en-ca/investing-101/roboadvisor

2. http://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp

3. https://www.wealthsimple.com/en-ca/investing-101/roboadvisor

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2014-2017 Advisor Websites.