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How does all the advise and technology add up for the investor

05 Jan 2023

Robo Wealth is all about combining two key aspects of the financial advisory business viz. quality advice and quality technology. For the Robo Wealth platform to be useful to the customer, it has to be quick, it must have the capacity to sift through mountains of data, it should have the tabulation capabilities to convert all these diverse bits of information into actionable inputs and it must be robust. That is where technology comes in. Then there is the need for domain expertise. Domain expertise is not only about research and insights. That is only one part of domain expertise. The big challenge is to simulate and evaluate the impact of not just one factor but a plethora of such factors. Your portfolio value could get impacted by war in North Korea, geopolitical strife in West Asia, the actions of OPEC, moves of central banks like the Fed, ECB and BOJ, Chinese commodity demand; apart from all the domestic factors that will impact your portfolio anyways. Let us look at how advice and technology add up for the various stages of your Robo Wealth advisory service..

Adding up advice and technology for financial planning..
Financial planning begins with articulating your goals and that will require a clear ability to project the future value of your goals under different macroeconomic and micro-economic scenarios. When you have multiple options and variables on both the axis, the actual simulation of future goals and their monetary implications becomes quite complex. That is where the role of technology becomes all the more important as the power of technology can complete these complex iterations in a matter of milliseconds. Then there is the aspect of advice. You need to be advised on articulating your goals, setting milestones, and mapping your investment journey towards your financial goals. That is where advice comes in handy. It is the combination of advice and technology, therefore, which forms the first pivot of the Robo Wealth platform.

Optimal monitoring using Target Investment Plans (TIP)...
Creating a plan is, probably, 25% of the entire job. The bigger challenge is monitoring. When you create a plan you theoretically simulate how you need to react to various situations and how your portfolio value will react. When it comes to monitoring, there is nothing theoretical about it. You actually need to act in real time. Why does this become so critical at this point of time? Remember, money is a scarce asset and has to be used optimally. You cannot take too much risk with your money because it will impair the value of your portfolio. Nor can you take too little risk with your money because that will result in sub-optimal returns. The big challenge in monitoring is that you need to right-size your monetary outlays as your move towards your goals. One such product that is extremely important is the Target Investment Plan (TIP).
A TIP basically tweaks the amount of regular investments that you make towards your medium term and your long term goals. To understand the idea of a TIP, let us look at it in contradistinction with a systematic investment plan (SIP). In an SIP, you invest a fixed amount each month or at regular intervals and let the power of compounding work in your favour. Let us say you are expecting a CAGR return of 15% on your equity fund over the next 10 years. So an SIP of Rs.10,000/- per month for the next 10 years will result in a total investment of Rs.12 lakhs and the corpus will be worth Rs.26.50 lakhs. That is good enough for your estimated outlay for your daughter’s college education after 10 years. But, that is exactly where the probability of sub-optimality arises in your plan.

Using TIP to revert your financial plan to optimal allocation..
The problem with the SIP is that it will continue to invest the same amount of money irrespective of what are the actual returns that the fund is earning. For example, in Case-1 the fund may be returning just 13% instead of 15%. That means, you will end up with a shortfall in your plan for your daughter’s college education. That is a situation you will not want to find yourself in. In Case-2 the fund may actually be earning 17% instead of 15%. You may feel that it is a good problem to have but you are effectively over-saving money for a goal and hence you are actually being sub-optimal as that excess can be productively deployed elsewhere. So what will the TIP do? In Case-1, the TIP will automatically increase the size of the SIP (say from Rs.10,000/- per month to Rs.12,000/- per month) so that your eventual goal is not impaired. In Case-2, you will end up with a lower SIP of (say Rs.8,000/- instead of Rs.10,000) and the saving of Rs.2,000 can be deployed elsewhere.

How TIP combines the power of advice and technology..
What you see as a smart TIP in this case actually is the outcome of hundreds of man years of research and insights on the content side and use of a robust technology engine on the simulation side. So if your fund is underperforming your goal, then the TIP automatically identifies whether it is a fund-specific problem or a market-level problem. If it is a fund-specific problem then the fund is switched and if it is a market level problem then the TIP monthly allocation is raised. The reverse holds true in case of outperformance by your fund. In both the cases, there is a massive technology operation that goes on behind the innocuous computer screen. There is a robust algorithmic engine that scours through millions of goal permutations, macroeconomic possibilities, market level options, database of investment products and performance metrics to arrive at the advisory solution. If that sounds complex, believe me, it actually is!

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