The financial services industry is undergoing a rapid transformation in the way that services are built, provided and delivered to mutual fund investors. This evolution is being driven by many factors from newer regulations, to changing demographics, to technological advances such as artificial intelligence, cell phones, big data, 4G, 5G. These have encouraged innovators in the financial advisory industry to ensure that individual investors have access to financial advice that can meet their changing needs. High tech solutions to fill this gap are starting to evolve in various forms. This has led to the development of the term FinTech, a brief abbreviation for financial technology. Digital advisory is one example of innovation in FinTech.
Digital advisory or Digital robo advisors incorporate automated, algorithm-based portfolio management guidance as a part of financial advice solutions. These online services use algorithms to make portfolio recommendations based on the information that an investor provides in a questionnaire or survey. A typical robo-advisor collects information from clients about their financial situation and future goals through an online survey, and then uses the information to offer advice and/or automatically invest client assets. This model heavily relies on the investor answering the survey accurately. It also places the responsibility of choosing the precise portfolio on the client instead of the advisor, because there is no advisor, instead just an algorithm providing recommendations. The technology engine that controls these digital advisors incorporate automated algorithms such as portfolio management built on modern portfolio theory, advice into financial advice solutions. The robo advisor algorithms range from a simple or pre-packaged algorithm that builds a single portfolio to complex multi-strategy algorithms that reviews many instruments and scenarios in order to construct a comprehensive portfolio based on your existing holdings, investment horizon, and risk tolerance. The role of human involvement within digital advisors is limited and varies based on the engagement model that the platform providing the services offers and the specific services provided.
Digital advisory services have the potential to significantly mitigate behavioural finance biases and provide customized investment tools to individual investors at a comparatively low fee and which assists in financial inclusion. Robo-advisors are also more accessible and are available 24/7 as long as the user has an Internet connection and a smartphone. Additionally, these services require less money than traditional portfolio management services or advisory services. Most of these robo-advisory platforms utilize modern portfolio theory (or another variant) in order to build passive, indexed portfolios for their mutual fund clients. Once a mutual fund portfolio is created, robo-advisors continue to monitor those portfolios to ensure that the optimal asset class weightings and allocations are maintained when the markets move either up, down or sideways . Robo-advisors achieve this optimal allocation by using rebalancing.
Financial services are unique and different mutual fund investors have different needs and some require multiple levels of investment strategies and human engagement. Human advisors can help develop a more comprehensive holistic view to support a mutual fund investor like yourself with all your financial accounts and are ideal for complex services required to deliver sustainable results or time.
Investment advisors are financially savvy, educated and licensed individuals who create comprehensive financial plans designed to build wealth in the long run. An advisor also does much more than portfolio rebalancing or tax calculation. They can help rearrange investments for efficiency in the current market, review budget allocations and saving strategies, and put in place the right financial protection through insurance or the usage of other financial instruments such as derivatives. if the economy changes or in a bear market, recession, an experienced advisor has the required knowledge to provide a proper analysis and plan of action. When faced with the decision of staying the course of an investment strategy or making an adjustment, you can discuss this with an expert confidentially who is familiar with your investments during this market volatility. An advisor can also evaluate what the decision will mean, not just for your mutual fund portfolio or company stocks in your account, but also for your long-term financial well-being.
One of the primary advantages of working with an advisor is long term and big picture thinking, planning. Investing isn’t so much about buying a product or service; it’s about integrating the mutual fund investments you own into your long term strategy. Ideally, investments correlate with each other and the skill of an advisor supports the ability to transform a customer’s vision into a concrete, achievable profitable plan. Human advisory goes way beyond just an algorithmic formula to buy or sell a mutual fund or a stock, they build the relationship, trust, skill and discipline what matter the most in investing.
The information, analysis and opinions expressed herein are for education purposes only and are not intended to provide specific advice or recommendations. This material is not an offer, solicitation or recommendation to purchase any financial products or services. Always remember that all investments carry some level of risk, including the potential loss of principal invested.