Financial Advisor Algorithm

When your financial advisor is an algorithm: The rise of robo-advisors

Soon, your financial advisor could be a robot. I know what you’re thinking: a number-crunching algorithm with no human personality, how would I tell the difference?

The obvious benefit of automated financial advice platforms is that you can get personalised financial advice without having to put pants on. In addition, robo-advisors usually offer lower – sometimes much lower – fees than humans. But can you trust a machine to tell you where to put your money?

A chip off the old block

In a sense, robo-advisors are not as new as they seem. A good robo-advisor should be cheaper, faster and take fewer holidays than its human equivalent, but the underlying strategy is the same.

As with human financial advisors, robo-advisors apply established algorithms and best practice guidelines to match clients’ investment goals with appropriate financial products.

The technology itself has been around longer than many South Africans might realise. Robo-advisors have been operating in the United States for more than a decade and are becoming increasingly common in other countries. It seems only a matter of time before they become popular here.

Do androids dream of electronic funds transfers?

How can a computer understand your hopes, dreams, fears and desires? Until we make significant advances in artificial intelligence, it can’t. But while some people depend on their financial advisors for pep talks and moral instruction, most of us just want to know what to do with our money.

Robo-advisors work by asking you about your goals, your risk profile and other relevant questions, such as when you plan to retire. They then match your personalised investment profile to the appropriate bouquet of products.

Considering the speed and convenience, it can only be a good thing that more people than ever have access to precise financial advice at a lower price.

Does the rise of computers still worry you? That may be something to discuss with your robo-therapist.