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Robo-Advisors is one of the most profitable business trends in WealthTech.
The main task of robo-advisors is to serve the average person as a doorway to the seemingly complicated investment world. This technology is able to reduce the costs of human labour while still offering personalised portfolios, and can usually be accessed as long as one has an internet connection and cash to spare.
Some customers would still be disappointed if they didn´t get Jarvis or virtual Alfred. Nevertheless, even as a slightly enhanced version of Artificial Intelligence, Robo-advisors have huge potential which can be used in WealthTech.
According to CB Insights research, since 2012 private robo-advisors have raised globally over $1.32B across 119 equity investments. Robo-advisors make up the largest sub-category of companies in wealthtech and account for roughly 30% of total funding.
Three of the earliest robo-advisors firms and largest in terms of total funding are Betterment, Personal Capital, and Wealthfront. Already leading in in the US, they are also trying to expand internationally. It proved to be a challenge though, mainly because of the complex international regulatory environment, differing investment practices, and other barriers to entry. Recognising the market opportunity outside the US brought up many new early-stage robo-advisors (seed/angel or Series A) that are being launched within different markets. These newcomers have already covered at least 17 countries outside of the US. Introducing a robo-advisor is the new strategy for WealthTech start-ups and a good way for transforming already existing companies.
Acknowledging the ongoing rise of robo-advisors, financial advisers make intelligent decisions. The development rate of all the assets under the management of advisory firms is expected to increase by 68% before 2020. Though robo-advisors are becoming popular, the simulation technology is also being used. This is mostly the case where robo-advisors fall short. Most firms prefer robo-advisors due to the lower fees and their ease of use.
Robo-advice is having a major impact on the wealth management industry. It has become one of the most profitable business trends. What is more, modern robo-advisors give investors a way to connect to their advisors, raising their participation.
Benefits for customers:
• robo-advising costs less than the same service with human-operators;
• a wider range of consumers has access to advice through automated tools;
• customers feel more confident by using a robo-advising system;
• customers receive more consistent advice when they use automated tools;
• consumers obtain advice based on the most up-to-date market information;
• it is easy for consumers to access a wider range of advice providers, including those from other jurisdictions;
• It is easier to keep a record of the advisory process.
Benefits for Financial Institutions:
• it is cheaper to provide advice through automated tools;
• financial institutions have access to a wider range of consumers;
• they may use automated tools to deliver a consistent consumer experience;
• the provision of advice by financial institutions is more easily auditable because automated tools are more easily interrogated.
For wealth management firms, robo-guidance services can be a bet on the future — a method to get customers and financial advisors comfortably acquainted with machines that enhance and expand human operation.
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