What is a Robo-Advisor?

Jack Oughton

by , Writer

24 May 2019 /  

What is a Robo-Advisor?

The first robo-advisors appeared towards at the end of the 2000s. Since then, the industry has grown at an impressive pace. In fact, Statista predicts that, by 2023, the robo-advice business may be worth more than US$2,552,265m (…about £1,959,000m in today’s money).

In this article, you’ll uncover a few myths around this technology, and explore some of the pros and cons of choosing robo-advice for your pension.

Here’s what you’ll learn:

  • What’s a robo-advisor? How does it work?
  • Myth 1: Your money is managed by robots
  • Myth 2: Robo-advisors are only for people with small pension pots
  • Myth 3: Robo-advice is only for millennials and ‘tech-savvy’ people
  • Myth 4: Robo-advisors might replace human advisors one day
  • Conclusion: Are robots right for you?

What’s a ‘robo-advisor’? How does it work?

Though the software behind it all is enormously complex, the concept of robo-advice isn’t.

Simply put, the term is used to describe a range of automatic investment tools that use software (instead of human judgement) to make investment decisions.

Now to dispell a few myths…

Myth 1: Your money is managed by robots

Reality: There’s an obvious issue with the name here - robo-advisors aren’t necessarily ‘robots’. They’re software, operating with a certain amount of human oversight (depending on the provider in question).

This means that, if you visit a robo-advisory firm, you’re unlikely to see any robots - just people working at computers.

Want to see an actual pension robot in action? Take a look at Armie.

Bear in mind that Armie only speeds up your paperwork for us - he doesn’t make any investment decisions! We leave that to our money managers - more on them later.

Myth 2: Robo-advisors are only for people with small pension pots

Reality: In the earlier days, people tended to use robo-advice services purely for smaller pots (sometimes referred to as ‘micro-accounts’).

This was typically due to the cost savings, and the obvious trepidation around putting such a large sum of your retirement money under the control of a piece of software.

As the technology has evolved and people have become more comfortable with the idea, robo-advisors are taking on larger and larger pot sizes.

Myth 3: Robo-advice is only for millennials and ‘tech-savvy’ people

Reality: As the figures show, billions of pounds in assets under management would suggest otherwise.

Today, many modern robo-advice platforms are easy to use with modern interfaces and require no more tech knowledge than the ability to log onto a website or app and choose from a few selections.

And, whilst many financial products wouldn’t describe themselves as ‘robo-advisors’, to one extent or another, many of them use the same digital decision-making technology to inform their investing strategy.

Myth 4: Robo-advisors might replace human advisers one day

Reality: OK, we’re not sure that everyone believes this one, but we’re going to put it to rest here anyway.

Despite what Silicon Valley and the ‘techno-optimists’ may tell us, automation is not the way of the future for everything.

True, robo-advice is likely to take a larger share of the pension market over the next few years (…and decades) but replacing humans completely one day? We doubt it.

There will always be people who want to work with a living, breathing human. Someone they can speak to about their investments, someone with years of experience that they can trust, and someone whose decisions are not based entirely on the variables within a piece of software.

Simply put, the robots won’t replace us any time soon. Or ever.

Conclusion: is robo-advice right for me?

Robo-advisors certainly have their place, the growth of the industry illustrates that. They’ve simplified investing and made it more accessible for many savers, but can they match the expertise and insights of the world’s biggest money managers? We’re not so sure.

Our money managers have centuries of combined experience and trillions of pounds under management - and no robo-advisor can match that yet.

Keen to manage your pension online?

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