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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?

Create and integrate robo-advisors with an experienced and secure team.

Pure vs. Hybrid robo-advisory

Robo-advisors should not necessarily always be a separate option. On the market, you can find pure robo-advisors, which were created for the sake of automating the investment process, such as Betterment and Wealthfront. Another option, where human input meets automation benefits, is hybrid robo-advisory. This sub-segment of the robo-advisory market is expected to accumulate the dominant market share by 2028. 

Combining things that work to create an efficient approach is what will make the wealth world go round in the coming years. And innovative solutions will be a linchpin in this hybrid system. According to Bohdan, systems of statistic analysis, regression analysis, and forecasting are the future. “So, technologies for processing of time series and autologging could be in the focus as far as financial advisory is concerned. Julia programming language, fast and high-performance when it comes to data analysis and attracting millions-worth investment, is another example,” Bohdan points out.

Creating a solution for robo-advisory

If you are familiar with robo-advisors, then you know that their efficiency largely depends on algorithms selected. Another thing to consider is the technology stack at the core of the software platforms. Technologies you choose as a cornerstone play a big role in satisfying clients’ expectations regarding the system’s performance, reliability, and security.

When building solutions for automated investment, we consider both factors. As a result, we are able to provide:

  • Powerful algorithms for building investment portfolios, reviewing portfolio performance, and building reports. 
  • Algorithmic-based factor analysis aiming to improve investing strategy and optimize performance.
  • Integrated, role-specific risk management solutions for risk profiling, scoring & assessment, and risk-return forecasts.

Create and integrate robo-advisors with an experienced and secure team.

Summing up and moving to what’s next

Growth opportunities for the segment are still huge compared to constraints. Right now, Fintech is witnessing an expansion of the robo-advisory segment. With the hybrid model as a fruitful point of balance, not a compromise, between human financial advisors and automated advisory services, the investment world seems to lessen the degree of rivalry and provide a place for multiple opportunities.

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