The Automation Of Financial Advisement: Robo-Advisors: [Essay Example], 1375 words GradesFixer
exit-popup-close

Haven't found the right essay?

Get an expert to write your essay!

exit-popup-print

Professional writers and researchers

exit-popup-quotes

Sources and citation are provided

exit-popup-clock

3 hour delivery

exit-popup-persone
close
This essay has been submitted by a student. This is not an example of the work written by professional essay writers.

The Automation of Financial Advisement: Robo-advisors

Download Print

Pssst… we can write an original essay just for you.

Any subject. Any type of essay.

We’ll even meet a 3-hour deadline.

Get your price

121 writers online

blank-ico
Download PDF

Introduction

Robo-advisors are automated investment solutions which actively engage individuals with the digital resources and tools to guide them through their investment decision by making and managing their portfolios through techniques which uses algorithm. The role of advisors had an established view over the last 40 years that the best way to get a higher return from investments is to have a human involved to get the best financial advice. Robo-Advisors are the new disruptive breakthrough for the banking system. This new entry to barrier has entered the market due to the demographical change and the focus on generational shifts. Consequently, the demand for digitizing the banking system and all the financial services is rising as technology is changing the nature of banking.

Digital Transformation, AI and Robo-Advisors

Automation and Artificial Intelligence

You can already see Artificial Intelligence on your smartphones, every time you use Siri or ask Alexa a question, every time you use your satellite navigation you’re using some algorithms, AI recognizing your speech and giving you search results. According to scientists, “AI is the new electricity”. Imagine when electricity powers everything you do, with AI however it empowers the way you live.

How did Artificial Intelligence become possible?

There are four exponents to the rise of AI

  • Computer performance
  • Big Data
  • Advanced algorithms
  • Funding increase by corporations and science research to implement AI.

Artificial Intelligence and Machine Learning

Machine learning is a version of AI focused on teaching programs to learn. It’s the intelligence level which keeps growing by storing big data and with a narrow focus domain it actually exceeds human performance. There are a lot of attributes to intelligence and by having a lot of intelligence and the ability to compute quickly would help tremendously in the automation advancement.

Artificial intelligence and the stock market

The advantage to have a computer that’s smarter than anybody in trading stocks would give the individual a definite advantage. With the rise of technology upheaval AI will automate not just physical tasks but also the thinking ones. Automation is moving up in the world. In the case of financial planners it is estimated that 15% of an average financial planner’s time is spent on tasks that can be done by AI. The argument of a financial planner would state AI cannot take over talking to your clients. The misconception of Artificial Intelligence by many is that everyone talks about automation as destroying jobs, the reality is automation changes the way we do our jobs. In fact AI do things much faster than an average human, less error prone and way more cost effective. With machines learning capabilities we’re teaching those algorithms how to learn the techniques and methodologies of trading, then the algorithms themselves leverage optimization techniques to extract insights not otherwise possible by only leveraging a human acumen. The importance of big dataFor machines learning algorithms to be effective, they need a lot of data. It is considered to be the new oil as companies are adopting digital transformation. The ownership of data is very important to companies as it learns more about the client overtime.

Robo-Advisors and FinTech

What is Robo-advisory?

New trends for wealth management has emerged for financial institutions which are leveraging client information with algorithms in order to build and develop automated portfolios and investment strategies and recommendations. This new development created a new term called “Robo-Advisors”. With this new development, financial firms have seen a tremendous growth by shifting the investment dollars to the robo-advice platform. Robo-advisory is an automated investment advice platform that provides algorithm-based advice at a very low cost with no human intervention. The whole concept of this technology is based on algorithms which can provide logical financial advice at low cost compared to what human advisors charge without any bias.

Target Market

Robo-Advisors target any customer with no screening and pre-selection process independent of their wealth status. The niche that Robo-Advisors are operating in, is trying to serve the younger customers who do not necessarily have thousands of dollars to invest or serving a customer base who want to cut down on their fees and are looking for ways to save without having to shell out the high commission cost to pay a financial advisor. The Millennial generation have taken advantage of this low-cost wealth management software platform and are reforming the financial markets and driving the change.

Can Robo-Advisors Understand Emotional Responses?

AI algorithms are much reliable than people. The argument is that people are not transparent the same way as an AI algorithm is. The human factor in replacing human brokers with Robo advisors is about human interaction.

The risks of Robo-investing

Many Robo – investing platforms lack the performance track record and data on how to limit downside exposure. The client may have limited control over asset allocation and fund choices. Many questions are arising about how this platform can protect the client from panic selling or overtrading.

The Start of Financial Technology

Financial advisement will be accessible for everyone as a result of digital onboarding, digital relationships and digital engagement. Many firms are getting into the Robo-Advisement business and understand ultimately that it is the future of investment. The client signs up to the online service by providing information goals about investment goals, income and risk tolerance. The computer software program uses that information to choose the client’s investments or monitoring the client’s behavior in terms of portfolio to produce a very detailed risk model.

An automated robo investor application which asks you a lot of questions like age, income, investment style, risk tolerance, etc. Based on the answers, it will tailor a profile with a mix-up of portfolios such as stocks, bonds. This application is suitable for users who don’t want to go in detail of what they are investing.

A look at the company “Betterment”

Betterment is an automated investing platform and 100% passive investing with no minimum deposit. The investment is in ETFs (Exchange Traded Funds) where it tracks a collection of different assets. ETFs allow a greater return without having to worry about picking stocks and reallocating money around. Betterment invest in two types of funds, stocks and bonds and has optimized the portfolio to give their customers the best possible performance. Betterment charge an annual fee of 0. 25% for accounts up to $1. 99 Millions and 0. 15% for accounts with $2 Millions and up. Their strategy is to rewrite the rules of investing with user friendly technology and their goal is to reach invested funds worth of $100 Billions by the year 2020.

High demand for ETF and Robo-Advisors

The spike in Robo-Advisement platforms resulted from the high demand in ETF. Financial companies are racing to revise and rebuild their platforms due to a niche demand from mostly millennials who are interested in DYI stock investment.

The key characteristics of Robo-Advisors

  • Robo – advisors use ETF to construct long term taxable portfolios
  • Compress the price tag to the minimum, dumping the market of traditional financial advice
  • Make performance reporting an easier task
  • Reduce compliance costs, risk management efforts and market data expenses by working with a more efficient catalogue of investment products
  • Link investors to market trends instead of individual stories.

An opportunity for financial firms to capitalize on a growing market of Auto Asset Management

Companies are racing for developing an in-house platform to both existing clients and new investors for their asset management services. By effectively acquiring the platform to the existing infrastructure is key to gaining a competitive advantage. The trends for robo- advisors and wealth management is the distribution strategy in a new digitalized platform.

The latest study has stated that 30% of the banking jobs will disappear. This has serious consequences in the financial sector. The reality is that the new jobs will be a very small number due to the automation of banking services.

Conclusion

The revolution of financial technology is changing the banking system and with its innovative use of technology which design financial services such as peer to peer lending, blockchain, crowdfunding, digital payments and robo-advisors. The user experience and convenience attribute is changing the way traditional banks do business. It has pushed all traditional and non-traditional banks to jump into FinTech in order to remain competitive. FinTech is continuously working on transforming how financial services are being delivered where consumers are benefiting the most from all banking services through its access and cost savings.

Remember: This is just a sample from a fellow student.

Your time is important. Let us write you an essay from scratch

100% plagiarism free

Sources and citations are provided

Find Free Essays

We provide you with original essay samples, perfect formatting and styling

Cite this Essay

To export a reference to this article please select a referencing style below:

The Automation Of Financial Advisement: Robo-Advisors. (2020, Jun 14). GradesFixer. Retrieved January 14, 2021, from https://gradesfixer.com/free-essay-examples/the-automation-of-financial-advisement-robo-advisors/
“The Automation Of Financial Advisement: Robo-Advisors.” GradesFixer, 14 Jun. 2020, gradesfixer.com/free-essay-examples/the-automation-of-financial-advisement-robo-advisors/
The Automation Of Financial Advisement: Robo-Advisors. [online]. Available at: <https://gradesfixer.com/free-essay-examples/the-automation-of-financial-advisement-robo-advisors/> [Accessed 14 Jan. 2021].
The Automation Of Financial Advisement: Robo-Advisors [Internet]. GradesFixer. 2020 Jun 14 [cited 2021 Jan 14]. Available from: https://gradesfixer.com/free-essay-examples/the-automation-of-financial-advisement-robo-advisors/
copy to clipboard
close

Sorry, copying is not allowed on our website. If you’d like this or any other sample, we’ll happily email it to you.

    By clicking “Send”, you agree to our Terms of service and Privacy statement. We will occasionally send you account related emails.

    close

    Attention! this essay is not unique. You can get 100% plagiarism FREE essay in 30sec

    Recieve 100% plagiarism-Free paper just for 4.99$ on email
    get unique paper
    *Public papers are open and may contain not unique content
    download public sample
    close

    Sorry, we cannot unicalize this essay. You can order Unique paper and our professionals Rewrite it for you

    close

    Thanks!

    Your essay sample has been sent.

    Want us to write one just for you? We can custom edit this essay into an original, 100% plagiarism free essay.

    thanks-icon Order now
    boy

    Hi there!

    Are you interested in getting a customized paper?

    Check it out!
    Having trouble finding the perfect essay? We’ve got you covered. Hire a writer

    GradesFixer.com uses cookies. By continuing we’ll assume you board with our cookie policy.