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Understanding the Basics of Robo-advisors

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Investing has long been a human-led experience where people trust financial institutions and their portfolio managers to advise them 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 are an emerging digital technology that provides people from differing investment backgrounds with 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 their precise purpose. Here, we outline some of the basics behind how the latest robo-advisors operate.

Explaining the AI in your robo-advisor

When a customer invests using a robo-advisor, the software works to achieve their objectives based on machine learning and optimised indexing strategies. But 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 this information is 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 realise that every financial institution’s robo-advisor will have subtle differences. With these AIs created using different investment and financial market data, 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, today you’ll find that most of the world’s largest financial institutions are heavily involved in the development of these investment tools. In fact, the U.S. robo-advisor market topped $1 trillion in 2020 – a figure that is growing approximately 40% year-on-year. Meanwhile, other financial hubs are starting to take notice, with a 2020 study finding that 38% of adult internet users in China are currently using robo-advisers.

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. 

With data analysis and reporting aspects of an investment portfolio handled automatically by a robo-advisor, account managers will still have a critical, yet more customer-orientated role when offering financial advice. This means they can spend more time focused on complex or nuanced investment strategies requiring extensive experience, rather than bogged down in rudimentary facts and figures.

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

It doesn’t matter 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. By considering a wide range of demographics, including age, gender, salary, investment preferences and pain points, you can create 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 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

Now that you have a basic understanding about what a robo-advisor is, consider how Bambu’s world-class solutions will help your financial institution engage its customers. Having developed robust 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.

Backed by years of experience in the finance and technology sectors, Bambu’s specialist team can guide every stage of your robo-advisors’ development, ranging from customer research and UX design to tailored AI-driven algorithms. Contact us at to learn how our elegantly designed robo-advisory solutions can service your customer base and achieve your business goals.