Self-guided online services have been managing human wealth for almost 15 years. Launched the same year that crypto was created, robo-advisors managed to cement their presence in the Fintech market, too. Now, they claim more and more space on the wealth management scene each year.
Will robo-advisors replace human financial advisors, pushing the latter from the scene? A yes-or-no question might not apply in this situation. Let’s take a look at the facts and opinions that might help us unveil the future of investment.
Rise of the robots (is going not so smooth)
The global robo advisory market is projected to witness prominent growth and generate a revenue of $59,344.5 million from 2021 to 2028, as Research Dive expects. Statista shows that average asset under management per user has seen a steady growth since 2020 and the number of users has been on the rise continuously since 2017.
One of the reasons for such popularity is the trust in automated systems that leave no space for human irrationality and the undesirable emotional response, believes our Project Manager and Business Analyst Bohdan Hlushko.
“Emotions, circumstances can paralyze even the most rational mind. Human advisors, just as all people, can fall victim to their concerns, inevitably. Being emotionless, robo-advisors have an enormous advantage in this respect. As a result, we get a precise and rigorous system of decision making.”
Another key reason robo-advisors rock the fintech scene is that they cater to the needs of a financially constrained audience among others and are mostly beginner-friendly.
However, despite the charted success, robo-advisors are still standing on uneven ground quaking with the global crises. Asset under management growth in the Robo-Advisors segment has been slowing down since 2018, with a moment of increase from 28.8% in 2020 to 34.8% in 2021.
Human investment requires human touch?
Despite the high-tech attraction of robo-advisors, they did not enter the investment territory as a tsunami. As many as 88% of investors that use services of digital advisors would switch to a human advisor if they considered a change, according to a survey of 1,500 investors by Vanguard.
Why so? “The main weak point of robo-advisors is their inability to promptly adapt to risks and crucial changes, as well as to foresee them,” replies Bohdan.
“Basic approaches, such as linear regression with gradient descent, or statistical analysis, are all that algorithms can offer. Whereas humans have these systems in the back of their minds, operating from experience and based on the external signals. The larger the sample, the more reliable the system—but no robo-advisor can claim a substantial amount of input data to respond to risks as efficiently as human advisors can.”
So while both humans and automated systems cannot boast of perfect investment or wealth management advice, each seems to lack what the other has. Does the future lie in the middle ground?