I posted this on LinkedIn at the weekend:
“No. I don’t have a robo-advisor that beats the market and makes money.
If I did, why would I tell everyone?
I have the best technology to help your clients manage their wealth and achieve their goals.
Wealth has always been full of friction and cost.
Technology helps to make the experience smooth and low-cost.
And that creates something everyone wants…
If you want happy customers, call Bambu.
If you want a magic robot that makes money…
Well….I’ll get Santa to deliver that to you.”
This is truly my pet peeve about the robo-advisor industry. I get it. The word robo-advisor suggests something special, like a robot that advises you.
And why would we build a robot that gives bad advice? Surely, we only build robots that give good advice, right? And that advice is about money. So the “good” advice must be how to make more money, like how to beat the market.
I cannot tell you how many pitches I have been in when the client has asked “How does your robot beat the market?”.
I politely explain that I don’t have a magic robot that beats the market.
And I get the same look each time -“Mmm, he must have one. I wonder where it is”
So let’s be real…
Robo-advisory refers to the idea that pre-built, standard portfolios, normally of ETFs, are offered through a digital device like a mobile phone.
A human builds five normal portfolios, and they deliver it in an engaging design on a mobile or a laptop with no physical paperwork involved and seamless funding.
The word “robo-advisor” has absolutely nothing to do with some amazing algorithm that gives excess returns. That’s what hedge funds like Renaissance Technologies do. If you don’t know Ren Tech, check them out. They do have a magic robot. That’s how they have made a lot of money. And no, they won’t tell you how it works.
Don’t get me wrong, having great performance and returns would be ideal. Having that, on top of a low-cost, frictionless, customer-centric wealth experience would be amazing. It’s just not guaranteed.
Also, regulators would be unlikely to allow a complicated automated algorithm to be offered to mass retail investors. Regulators would rather have robo-advisors manage the money using established investment theories.
Most robo-advisors build “standard” low, medium, and high-risk portfolios, with risk questions to bucket the investor in the right category and that’s it. No magic.
Just good quality investment advice delivered in the newest digital fashion.
Now that’s magic. 🙂
Founder & CEO