Robo-advice and the Fourth Industrial Revolution (4IR) are
inevitable and will affect the financial industry sooner than
we expect – but is it necessarily all good?
Robo-advisers are an online solution for investors that
make use of algorithms to manage a portfolio based
on a client’s personalised parameters. The client inputs
their time horizon and risk appetite before a quick
calculation gives the investor a choice of funds that suits
their requirements.
The more traditional option is a personal financial
adviser, a professional who will help manage aspects
of your financial life, from investing to estate and tax
planning. The more complex your financial situation, the
more likely you are to approach a professional to assist
with your needs.
At first glance, the main advantage of robo-advice
is the cost reduction. There is little to no human
interaction in this process, which drives costs
down. In line with the cost-cutting measures of
digital advice, the mandate of your portfolio will
most probably be aligned to a passive index fund
that tracks a predetermined index (such as the JSE
Top 40). There is much debate about the advantages
and disadvantages of these funds over actively
managed funds.Hire a guide
Financial advisers have a role to play in order to earn
their fee. Wealthier investors tend to have more complex
finances that stretch beyond their personal investments,
including their estate planning, trust planning, tax
planning and holistic financial plans that include life
insurance and the financial wellbeing of the client, their
business and their family. This is where an approved
certified financial planner is crucial.
Clients are given the chance to take advantage of
the continuous developments and opportunities in
the industry with a financial adviser who can assist in
reducing their tax on income and at death, and ensure
their family is protected in the case of their death.
The human behaviour factors that also tend to
influence our inherent biases should also be taken into
consideration by a knowledgeable financial adviser
versus the simple algorithm of a robo-advice approach.
If you are still young and single and looking to invest
a small amount towards a simple goal like a first car or
starting a retirement annuity, robo-advice might suit
you. But if you have acquired a fair amount of wealth and
are starting a family or business, then your requirements
will be increasingly more complex.Text | James Robinson Photography | TarikVisionJames Robinson is a
Private Client Wealth
Associate at Alexander
Forbes Wealth. For
more information, go to
alexanderforbes.co.za.30
business trade | industry
FINANCE
Robo-advisers are a class of financial adviser that
provide advice or investment management online with
moderate to minimal human interaction
Would you
trust a robot?