Farewell Mr. Financial Advisor

Farewell Mr. Financial Advisor

"Trust me, buy XYZ stock today and sell it after 2 months. You will double your investment. I am only telling you this because you are one of my top clients!" Have you too been the victim of this kind of blatant deception at the hands of smooth-talking financial advisors and brokers? Were you led to believe that somebody using financial jargon and speaking confidently can’t possibly be wrong?

Woody Allen, a famous American filmmaker jokingly said, "A stock broker is one who invests other people's money until it's all gone." But sadly, there is some truth to this joke. Many financial advisors today have learnt to 'walk the walk' and 'talk the talk' so convincingly that majority of the retail investors trust them blindly with their hard earned savings. Even though many of us know that we are being taken for a ride, but we still keep repeating the same mistakes and secretly hoping for a different outcome each time!

That's where new-age robo-advisors come into the picture. Robo-advisors are fuelled by the power of automation and technology with the added advantage of keeping you in the driver's seat. For who can be a better judge of your financial needs and requirements than yourself? So here's looking at what robo-advisors bring to the table, and why they are taking the world of investing by storm.

A robo-advisor is an online investment advisor, which requires minimal human intervention. It is an algorithm-based portfolio creation and management software, which can provide low cost solutions for all kinds of investors.

It's all about the money, honey

Significant cost savings The biggest advantage of robo-advisors is the low cost. And when the primary goal is to save money, then this becomes the most crucial advantage too. Management fees charged by traditional advisors reduce your profits drastically. For instance, a 2% annual fee could reduce your total returns by 50% in 10 years, and as much as 250% in 20 years. On the other hand, fees charged by robo-advisors are much smaller and have a much lower impact on your final returns.

Small investments are welcome Robo-advisors do not force you to maintain any minimum investment levels, thereby making them a huge hit across the spectrum of retail investors. They also provide much needed liquidity and flexibility with your money. If you are new to investing or looking for short term ideas, a robo-advisor can help you avoid some costly mistakes like trading too frequently or buying high and selling low.

Motivations, biases and human emotions

"The individual investor should act consistently as an investor and not as a speculator." – Ben Graham, a British-born American economist and professional investor, who many people considered the father of Value Investing.

Not influenced by personal bias A financial advisor is often guided by his own instinct or bias towards a certain trend, which can prove detrimental in many a cases. A robo-advisor, on the other hand, is backed by high end algorithm and portfolio management indices, which remove all element of personal bias in favour of accurate and research supported data.

Putting your interests first Traditional financial advisors favour quick buy and sell scenarios, as most of them earn commissions on generating transactions. However, a robo-advisor would keep your portfolio optimized based on their profit maximizing algorithms and avoid frivolous trading activities that only cost you money without generating profits.

One product - Multiple benefits

Tweaking and rebalancing Robo-advisors boast of using cutting-edge automated portfolio rebalancing algorithms which keep your investments in line with changing market conditions. Unlike human advisors, who are limited by time and energy, robo-advisors can keep track of a large universe of stocks to pick the very best for you.

Throw away the stress medicine Trading on your own is known to be extremely stressful and can take a toll on your physical and mental health. With the help of a robo-advisor, you can rest assured that the guesswork and constant monitoring goes out of the window. It will stick to your risk tolerance directions at all times, use the most well-researched advice and leave you smiling and tension free.

In a nutshell, robo-advisors can be the perfect investment product for people who wish to achieve their long term investment goals without filling the coffers of so-called “money managers” and without losing their peace of mind.