Automated Investment Platforms: Scam or Easy Money?
Many potential users of automated investment apps ask themselves the question in this headline. As Fintech booms with cutting-edge investment options, many still prefer to rely on human financial advice. What’s anchoring that lack of trust in autopiloting finances is a large amount of scam and fraud in automated investment.
But is it really deceit and the lack of transparency that turns people off in some cases? Let’s puzzle out the landscape of automated investment and check it for points of action for Fintechs.
Defining automated investing
Automated investing spares financial market enthusiasts the task of making investing and trading decisions. Once registered on an automated investment platform, all one has to do is provide relevant information such as financial goals and risk tolerance, and algorithms will translate it into an investment or trading strategy, which the platform will execute automatically. Available on trading and investment platforms, pre-built portfolios are an asset for the beginners in the financial markets.
Automated investment is often mentioned synonymously with robo-advisory. However, there are nuances and circles overlapping each other in that area of Fintech.
Embrace the diversity: ways to automate investing & trading
Robo-advisors do the same job as human financial advisors, but in a more efficient way in regard to the speed and scale of analysis. Given a risk preference and other relevant information, a robo-advisor allows you to invest money automatically. It gathers data and places it in a program for an algorithm to build a portfolio based on your profile. The resulting recommendation will be a basket of assets such as mutual funds, bond funds and ETFs, not individual assets.
Robo-advisors can be a suitable choice for those that seek long-term and cost-efficient financial planning. Surprisingly or not, they’ve already paved their way into the wealth management segment. Robo-advisors are also integrated in the infrastructure of such banking giants as JP Morgan and Charles Schwab.
What’s the catch?
Despite that acknowledgement, robo-advisor firms such as Wealthfront or Betterment saw their growth rates flatlined or declined for about seven years now. That is why they are slowly moving farther from pure passive investing services and increasing fees, which doesn’t exactly make their clients happy.