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Understanding the Basics of Robo-advisors

Investing has long been a human-led experience where people trust financial institutions and portfolio managers’ advice on potential opportunities. However, this slow-moving approach is quickly becoming a thing of the past with the rise of Robo-advisors.

But what is a Robo-advisor? Simply put, they provide people with portfolio advice through an automated advisory service. From investment management and strategic advice to retirement planning, these digital-first tools work towards achieving a client’s specific financial goals. Backed by powerful data-driven technologies like machine learning, Robo-advisors streamline the investing process and deliver long-term returns at a low cost. 

Naturally, if your business is looking to launch a Robo-advisor in the near future, it’s best to understand its precise purpose. Here, we outline some of the basics behind how the latest Robo-advisors operate.

Explaining the AI in your Robo-advisor

Through a robo-advisor, the software works to achieve its objectives based on machine learning and optimized indexing strategies. However, before the software can determine a suitable approach, the customer must complete a detailed questionnaire that assesses their ultimate financial goals, risk tolerance, timeframe, budget, and tax liabilities.  

Once established, the Robo-advisor proposes and executes investment strategies that reflect the client’s unique goals. Meanwhile, the AI constantly monitors the probability of achieving the desired outcome and adjusts its approach accordingly. Throughout this process, there’s typically no direct human contact between the financial institution and the client. 

However, it’s important to realize that every financial institution’s Robo-advisor will have subtle differences. AIs are created using different investment and financial market data. Therefore, an individual will have to research which Robo-advisor is best suited to their needs. 

Are Robo-advisors performing well in the market?

Although Robo-advisors have only been publicly available since 2008, you’ll find that most of the world’s largest financial institutions are heavily involved in the development of these investment tools. The global Robo advisory market share is expected to grow from $18.71 billion in 2021 to $28.10 billion in 2022 at a compound annual growth rate (CAGR) of 50.20%. Ultimately expect the global Robo advisory market size to reach $135.11 billion in 2026.

As digitalization becomes a top priority for global financial institutions, the development of Robo-advisors will be central to this ongoing shift. Currently, 70% of banks consider digital financial advisory services of major strategic importance, while 95% view the future of financial advice as a combination of face-to-face and digital services. Therefore, developing a winning Robo-advisor is likely going to be hugely beneficial. 

Considering that 147 million investors around the globe are expected to utilize Robo-advisors by 2023 – representing an 11-fold increase since 2017 – entering this digital marketplace now will position your company for a bright future.

Why launch a Robo-advisor?

With access to Robo-advisors rapidly increasing the world over, there are numerous reasons why your financial institution should also get on board. One advantage that shouldn’t be underestimated is how your wealth managers can spend more time building relationships with clients to boost the uptake of value-added services. 

Robo-advisors automatically handle the data analysis and reporting aspects of an investment portfolio. This provides account managers a critical, yet more customer-orientated role when offering financial advice. Therefore, spending more time focused on complex or nuanced investment strategies that require extensive experience. 

With these hybrid investment models combining the strengths of both humans and algorithms, a Robo-advisor makes perfect sense for modern customers. Fortunately, this approach also serves evolving consumer expectations, as more people now prefer predominately automated solutions that only involve human contact when necessary.

Quick tips to consider before choosing a Robo-advisor

If your financial organization is looking to enter the Robo-advisor market, there are dozens of questions to answer before you’re ready to launch. But to give you a quick head start, here are a few simple tips to consider when planning your automated investment advisor. 

1. Understand your customer base

Regardless of whether your business is looking to purchase a white-label Robo-advisor or develop its own, having a truly in-depth understanding of your customer base is critical to success. Consider a wide range of demographics, including age, gender, salary, investment preferences, and pain points. Ultimately, creating a solution that makes sense for your customers.

2. Design a digital-first solution

In response to your customer’s demographics, the design of your Robo-advisor could change dramatically. With many Robo-advisors aimed at inexperienced investors looking to enter the market for the first time, implementing a range of tools that guide them through the basics is essential. Alternatively, experienced clientele will likely prefer comprehensive statistics and analytics at their fingertips.

3. Create an easy-to-use app

Knowing your customer demographics and psychographics is not enough until you create an app that they are willing to use, especially when they may be new to investing. This boils down to ease of use manifested in the simplistic design of user interfaces and navigation, onboarding processes, and even readability of dashboards, portfolios, and fee models. Providing the user comfort during the investment experience is instrumental to the success of any Robo-advisor app.

Partner with Singapore’s Best

With the newfound knowledge of Robo-advisors, explore Bambu’s world-class solutions and improve your financial institution’s customer engagement. With a portfolio of developing fully-customizable automated investment advisors for 18 high-end clients, including Franklin Templeton, HSBC, and Standard Chartered, we have the expertise to build a powerful solution for your company too.

Bambu is backed by years of experience in the finance and technology sectors. With Bambu’s specialist team, expect guidance throughout every stage of your Robo-advisors’ development, ranging from customer research and UX design to tailored AI-driven algorithms. Contact us at sales@bambu.co to learn how our elegantly designed Robo-advisory solutions can service your customer base and achieve your business goals.

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