At a Fintech Conference a few years back when the concept of Robo Advisory was first being discussed, a sceptical investor had stood up and asked, "But can robots really advise"? The question was not entirely out of place. For years Indian investors had been used to being advised by chartered accountants, analysts, brokers, portfolio managers and financial advisors. The very idea of a robot advising on financial decisions had sounded quite antithetical to most people back then. But, not any longer!
In the last 3 years, there has been an increasing trend towards using robo advisory as a more efficient, objective and effective means of advising clients on their long term financial goals. What exactly is long term financial planning all about? After all, it is about articulating your goals, expressing them in monetary terms, evaluating your financial position and planning meticulously towards your goals. In a nutshell there is very little subjectivity in the entire process. Therefore if a computer is fed with enough intelligence on the demand and supply side and programmed to perform under stress conditions, then it will surely deliver the results. If it still sounds quite complicated, let us go about simplifying it.
Welcome to the world of Robo Wealth...
When Motilal Oswal launched its Robo Wealth platform recently, it was an attempt to marry the best of domain knowledge, advisory skills and technological finesse into one single platform. The Robo Wealth is uniquely dedicated to the selection and positioning of mutual funds into your portfolio but it serves a much larger and broader purpose. Here are the 4 steps that the Robo Wealth platform goes through...
Creates a unique client matrix of the customer based on her risk profile, return requirement, tax status and liquidity needs. The focus here is on the word unique.
Portfolios are never static nor are they supposed to be. As macroeconomic situations change and as new opportunities crop up, Robo Wealth helps you restructure accordingly
It is a one stop-reporting mechanism for you as you do not need to labour too hard to get a grasp of your portfolio standing. It is all there on one single screen
It is seamlessly actionable. Any restructuring recommendation or insight is useful if it can be executed in one click. Robo Wealth provides you that facility.
So in a nutshell, you are getting absolutely objective portfolio advisory from a hyper-intelligent computer and the advice is not a broadcast. It is uniquely designed only for your specific needs. And, without any human intervention, the individual bias and conditioning is entirely eliminated.
So, you are still not convinced; then read on..
What the Robo platform does is to marry the best of advisory skills and the power of technology. Today with high powered computers it is possible to write algorithms (these are intelligent computer programs) that can evaluate millions of permutations and combinations in a matter of seconds. So when you sit in front of the computer and are being advised by the Robo platform, the output that you get is backed by hundreds of man years of research and advisory skills and gigabytes of data being scoured in a matter of seconds. Then the algorithm puts all these data sets into a readable and insightful shape and the result is your solution. So there is a lot going on behind the screen and that is made possible by the marriage of technology and advisory. To understand this marriage better, let us take the supply side and the demand side separately.
Breaking up the supply side of Robo Advisory
The supply side of the Robo Advisory consists of all the financial products that are available to help you plan your finances. Let us take the case of mutual funds. The Robo Wealth algorithm will scour all the available equity funds, debt funds, liquid funds, index funds, and arbitrage funds etc that are available in the market and bracket them into unique risk-return matrices. They are also bracketed based on their historic returns, duration, Sharpe, Treynor etc. This helps us address the first leg of the advisory platform, which is the supply side and consists of all the actual investment products that are available for investment.
Breaking up the demand side for Robo Advisory..
With the supply side largely in place, we now move to the demand side of the robo advisory service. The demand side obviously consists of individuals who have long term goals like retirement, child’s education, purchase of property, discretionary expenses etc. These needs are dynamically adjusted for future dates using inflation and probability of future volatility. Once that is done, the algorithm actually brackets the individual into one of the matrices based on her return requirements, risk appetite, tax status and liquidity needs.
Both the demand and the supply side of this robo advisory service entail a marriage of advisory skills and technology. The beauty is that you get an elegant and refined financial planning solution that is not only well thought through and customised but also easily executable and actionable at the click of the button. Welcome to the futuristic world of Robo Wealth. The time to start is now!
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