According to Business Insider, ‘Robo-advisors (with some element of automation) will manage investment products worth $1 trillion by 2020, which will go up to $4.6 trillion by 2022.’
The wealth management industry is in the midst of significant changes, the most engaging of them being the advent of Robo Advisors. Sounding like the love child of Fintech and Robotics, Robo Advisors are exactly what their name describes them to be – Artificial intelligence that helps manage financial decisions or offer streamlined financial advice.
What exactly are Robot Advisors?
Nicki is in her late twenties. She does not want to hire a financial planner. She does not have enough assets to hire an advisor yet, and she has been a do-it-yourself investor so far. She doesn’t want to select investments, rebalance and place trades on her account.
Robo advisors are for people just like Nicki.
It’s simply a programmed artificial intelligence that can be installed in a device as handy as your phone, that will automatically select investments and build a diversified portfolio for you. What is basically does is make smart financial data extraction and make wealth management decisions for you.
Once your funds are invested, on an ongoing basis, the software automatically makes changes to the investments to align your portfolio back to a target allocation. Some Robo Advisors even automatically make trades that can help reduce your tax bill; a process called tax-loss harvesting.
So what does this mean?
For wealth managers, it means that it can take out the mundane repetitive tasks that they’re used to doing and allow them to benefit from the collective intelligence and experience that a Robo Adviser brings to them.
With these pre-programmed Robo Advisors by their side, the key now is how can financial institutions find that balance between what they develop in-house, what they do in terms of partnering with Fintechs, and more importantly how they are collaborating together to drive the maximum value out of cognition in wealth management. Automating financial data extraction will change the fintech industry as we know it.
What do Robo Advisors mean for investors?
On the investor side, it means that their financial advisors are going to be so much more able to service them and have much more time to do financial planning, goals-based investing in some of the really valuable relationship things that financial advisors can bring to their clients.
The concept of how you’re able to take actionable insights through data is what fuels this process. The world is becoming more contextual. It’s becoming more personalized. It’s becoming more customized. And for financial services, in particular, some of the solutions and capabilities and the progress that’s already being made – it’s beyond our imagination what’s going to happen in the next five years!
Not everyone has the access or knowledge to financial data extraction, which is the reason one hires a financial planner. However, the affordability is off the charts for some sections of the population. Which is why, Robo Advisors are best for beginning investors, young professionals who want to put their portfolio on “automatic”, and for investors that have a relatively simple situation.
Cognition and Data Extraction
Cognition in wealth management is fast emerging as a very powerful domain. Cognition – in simple terms, is the ability of a machine to learn from humans and the world around us, and use that knowledge to be embedded in the world around us from a technology perspective.
How important can financial data extraction be in wealth management? It is much more impactful than one might think. Having cutting-edge data extraction technologies in wealth management can create marking levels of performance and efficiency for a person, or for a company.
A key term in financial data extraction is dark data. The data that we just sat on, never analyzed is now described using the term dark data. It’s going to be able to take us to levels of performance and efficiency that we’re never able to achieve before.
It’s the tapping of this dark data that’s going to make these Robo Advisors stars of wealth management.
Robo advisors are an excellent example as to how investments will be made in the future. They use customer experiences a lot more than banks do to engage individuals on a different scale reducing the barriers to entry for the adviser to the lower tier of the customers. In a world where the managers are shrinking investment price onto creditor, the wealth managers are basically pushing the time ahead, and helping the advisor capture the momentum, inviting individuals to invest for the longer term.
Future of Robo Advisors
It’s basically where individuals shape in their life journey, their needs, their ambitions, and also when the marketplaces came in favor.
Now, the industry starts forming in a way that we need to provide advice through the life cycle. Robot advisors are what holds that in to create a little paradigm on which banks can plug in all the other competencies. Today in the world of financial innovation and technology innovation and cognitive automation, for example, an understanding of the customers to behavioral finances helps elevate decision making in a way that was not possible before. The potential robo advisors have when it comes to financial data extraction, is powerful.
It’s a fine technology that personalizes personal finance.
The role of financial data extraction in wealth management is simply being capable of creating the investment opportunity around what people think about themselves and their relationship with money. Investing and saving are all related to each other and digital is changing the way we related the one to the other and to ourselves. The needs and goals of an individual are highly important when it comes to wealth management. Therefore, an advisor needs to have the capability of understanding the customers. When it comes to Fintech, customer insights are critically important.
When it comes to wealth management, the experience is very important. Now we can craft digital gamification which is more an art than a science, but in essence, it’s a way of helping individuals to test themselves enough before they start investing, and during investment, journey to learn about money and money’s uncertainty.
The combination of traditional gold based investing and cognitive gamification will allow the robot to hit the target in near future.
We live in a very interesting period. The baby boomers are very close to retirement, almost all of them would have retired by ten or fifteen years. And this is creating a very unique momentum in the history of the developed world. A lot of money is going to change the purpose and change hands. They might easily live longer because of the advances in medical sciences and yet may not have enough saved up for retirement.
All this is going to create an interesting and unfortunately painful financial crisis, bigger than the one of 1854. This is why we see in the Fintech industry a great interest from these small players as well as the big players to merge financial advice and commercial planning because you will have to educate individuals and advise individuals with more compelling propositions. That’s where we really need the digital experiences and gamification as well as upgraded financial data extraction techniques to engage with individuals in a way that everyone can afford.
This is the ultimate transformation of the Fintech industry.
The potential that a Robo Advisor holds can break trends in the fintech industry. Learn more about the other promising opportunities that financial data extraction can bring into your business. Our experts are waiting! Driven by cool techniques like machine learning, NLP and Data Science, Mobius Knowledge Services help clients leverage their businesses to improve profitability, attain competitive advantage and gain customer retention.