Robo Advisors: Is this right for you?

Technology is disrupting every space it is entering, and financial advisory is no different. The advent of ‘robo-advisors’ in the Indian market is changing the landscape of financial advisory, which till a few years back mostly needed human guidance. Robo-advisor is companies that provide financial advisory to you with minimum human interaction. They provide you automated services based on computer algorithms, which many times keep on improving based on your behaviour and gives you a customised product. But before that, you need to feed the system with your financial position including goals you are seeking. Next, based on inputs provided by you it prepares a detailed plan of your investment, which includes the amount to be invested in different schemes and SIPs. It will also rebalance your portfolio periodically depending upon your financial goals.

The reason it works is that it stops you from taking any subjective decision or biases that normally seeps into your decision. It has been well documented that most of the time the cause for your poor investment returns is your own behaviour. Robo-advisors help you to correct that. The popularity of robo-advisors is growing globally and according to one study assets managed by robo-advisors is going to touch US$ 4.6 trillion by 2022 which is less than US$ 1 trillion now. One of the reasons for such rise in robo-advisors is because it reduces the cost of financial planning. The use of technology has definitely helped curtail the cost of such services and has democratised the financial planning, which was till now mostly used by the affluent class of the society. To avail the services of financial planners you need to have a minimum corpus, which would range from Rs. 20 lakh to Rs. 1 crore.

Is robo-advisory is meant for you

Robo-advisory is mostly used by someone who is comfortable with online tools. It is also suited for those who have small corpus for investment and can not afford a financial advisor. This is also helpful for you if your financial planning is very simple. You only invest in mutual fund and have very simple goals such as buying a car or house.

Despite all the benefits offered by the robo-advisors, there are certain areas where they fail to match human intervention. For example, if you have a diverse set of assets such as equity, mutual funds, gold, real estate etc, robo-advisors (atleast in the current context) fail to guide you. It also fails when your financial goals become complicated like paying off credit card debt or having the appropriate amount of money in a contingency fund.