"Futuristic" is no longer a word we can use in connection with robots. The future is here.
In the investment space, they are not actually walking and talking robots in the vein of R2D2 of Star Wars fame. They are algorithms developed to automate digital investing. The investor can simply key in details like age, savings goals, risk appetite into a computer or smartphone, and the algorithm crunches the data, puts together and manages a personalised investment portfolio for the customer.
Can robo-advisers do the job of human financial advisers? The short answer would have to be – it depends. It may work for some people but not for others.
They’re all over the world
Robo-advisers for the retail investor started appearing around 2008 in the US. Fast forward 10 years, and robo-advisers were managing about $785bn, as reported by Backend Benchmarking, which specialises in research on digital advisers.
With most Asian countries already highly digitalised, it comes as no surprise that such online “self-service” investment channels are on the rise, particularly among the more tech-savvy population.
Who uses them?
The new normal is where people get what they need for their daily lives digitally. Online shopping, food delivery, booking rides. Buying investment products online is a natural progression.
Typically, robo-advisers offer low or zero account minimums. They are available 24/7 including on public holidays, and allow clients to transact at their own convenience, whenever they can squeeze in the time within their own busy schedules.
What about the humans?
Does this make human financial advisers redundant?
Robo-advisers may be better at data crunching, but they have their limitations. Anyone who has tried to actually chat with a chatbot on a website when they cannot get through to a human customer service officer can attest to that.
Clients will quickly learn that robo-advisers will not be able to understand or guide them through complex situations such as job loss or the investment uncertainties amidst a pandemic.
The online questionnaires that robo-advisers use to develop the best portfolio for a client cannot sift through answers, hear the unspoken and gauge body language in the same way a human adviser might.
The Life Insurance Association, Singapore (LIA Singapore) reported that for the year 2021, online purchases of new policies transacted by customers without financial advisory nearly tripled over 2020. But breaking down by distribution channels, online transactions accounted for 32.2% of number of policies sold and 3.5% by weighted premiums, as compared to sales by financial adviser representatives (22% by policy count and 28.8% by weighted premiums).
There appears to be room for both to co-exist. Robo-advisers can complement the work of human financial advisers in handling straightforward products, freeing up the humans to manage the more complex and nuanced cases which cannot be captured via an online questionnaire.