Digitalization is changing the financial sector enormously. One of the most prominent representatives of this change is the robo-advisor. But what exactly is behind this term – and how sustainable is this investment method? While the robo takes care of your investments you can lean back and enjoy vave casino. While AI language models such as GPT and PaLM have only been capturing the hearts of tech-savvy people since the end of 2022; and the range of user:in reactions extends from sheer enthusiasm to the ultimate threat to humanity, robo-advisors are comparatively old. A robo-advisor is a digital financial advisor, i.e.; software that makes financial decisions with the help of algorithms and computer-controlled models. Such a tool analyzes huge amounts of data, from market analyses to the user’s personal financial information. Supporters of robo-advisors believe that such tools are able to make the best investment decisions based on an investor’s risk tolerance and financial goals. In fact, they often do so in real time and with an efficiency that manual processes struggle to match, if at all.
IS IT EASIER NOW?
So has personal investment advice had its day? No. At least not for people for whom certain values are important. More on that later. First, let’s shed some light on what advantages robo-advisors have.- A robo-advisor is usually less expensive than traditional financial advice because the software replaces human processes and can take advantage of economies of scale.
- The digital financial advisors usually create a personal risk profile; and a personalized investment strategy for their clients as soon as they sign up. They often also take care of opening the securities account.
- Digital asset managers usually monitor portfolios continuously; because they do so automatically.
- A robo-advisor often comes with a web interface or even an app; so it is available anywhere in the world and at any time – unlike traditional financial advisors.
- Traditional financial advisors sometimes act in their own self-interest and suggest high-priced in-house investment products first in order to generate commissions. Robo-advisors, on the other hand, have a reputation for seeking the optimal decision for investors.
- Robo-Advisor save financial market risk investments sustainable investment
- With a robo-advisor; basic risk preferences can be set, but detailed changes cannot be made.
WHY APPEARANCES ARE A BIT DECEPTIVE
There are now many different offers for digital financial advice, which differ in quality, price, user interface and sometimes also in orientation. And of course, all these robo-advisors also have disadvantages.- The first and perhaps biggest one is already in the name: Robo-advisors offer automatic portfolio management, but human advice and individual portfolio adjustment fall by the wayside.
- There are now hybrid models that offer a combination of automated advice from algorithms and personal service, and they seem to be taking over the market, especially in the United States. But their main task is still the effective management of the portfolio.
- Technology doesn’t argue with itself: With a robo-advisor, you can set your basic investment strategies and risk preferences, but you can’t make detailed changes, such as adding or removing specific stocks or funds.
- Thematic specialties can be defined in some systems, but especially in the area of sustainability there are a lot of inaccuracies, misunderstandings and little known truths that robots tend to have their difficulties with.