Robo-advisors: The Road Ahead in the Digital Transformation Drive

Fundamental shift is taking place in the way automated wealth management services have been operating

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The financial services ecosystem is witnessing a rapid technological change.


The fintech industry has been revolutionizing the sector in the past few years, with disruptive technologies such as Machine Learning, Artificial Intelligence, Social Data Intelligence, Blockchain, etc., which are proving to be enablers in solving critical business problems. 

As per the World Economic Forum, competition in wealth management has gone up as “Robo-advisors” enhance the accessibility of wealth management services and place margin pressures on traditional players. Customer trust has dipped in the past few years, primarily with the financial crisis, and challenges are now galore, with disruptions coming in from various quarters, which have had their impact on the personal finance industry as well.

A fundamental shift is taking place in the way automated wealth management services have been operating, enhancing efficiencies and ensuring empowerment to customers so as to have more control over their wealth management systems. Institutions that quickly adapt and are nimble enough to innovate, are better placed to cater to changing customer expectations.

Role of Technology in Shaping Lives

WealthApp, a premium Digital Advisory Firm, has conducted a survey in a few remote towns in Karnataka. Interesting insights have emerged from this survey — about 80 per cent of the population there spend about 20 per cent of their income on smartphones and data usage.

People there are actually very tech savvy, largely on mobile phones. These people also are not averse to investing in mainstream financial products. However, many of them invest in chit funds and the likes, for want of guidance. It is in such situations that technology is increasingly becoming a powerful catalyst in bringing together people real-time, and aiding in decision making.As the investment landscape has continued to evolve rapidly, financial advisers need to hone new skills in order to provide customized as well as innovative services.

Growth of Robo-advisory Platforms

In Asia, the advent of robo-advisory platforms has seen a tremendous uptake in the last two years, fuelling a wave of growth in the industry. Innovative and differentiated offerings are paving way for informed and engaged customers.

According to KPMG’s ‘Robo Advising: Catching Up and Getting Ahead’ white paper, the digital advice market in the US is projected to reach US$500 billion by 2020 while robo-advisers’ assets under management are forecast to hit US$2.2 trillion. This projection speaks volumes of the kind of growth and traction that this sector is expected to witness globally.

Robo-advisory platforms enable customers to save and invest in mutual funds and ETFs, without any need for manual intervention. It is an automated process, and hence provides convenience. It avoids the hassles of visiting the branch and the cumbersome physical documentation process.  With AI and automation, the entire process can be done effortlessly through the internet.

Globally, robo-advisory firms have undergone a major evolution. From offering basic dedicated fund management services, to algorithm-based portfolio rebalancing, to now fully automated or hybrid models with human advisers as well, it has seen an upward growth. Companies are focusing on providing value added services, enticing customers. Some of the services offered by such robo-advisory firms include account aggregation, providing a bird’s view of one’s financial health, and customisation, which optimises a client’s portfolio based on risk tolerance and investment capacities. 

Hybrid Robo-advisers

Another feature that has gained prominence has been the emergence of Hybrid robo-advisers. Hybrid robo-advisers have been welcomed by financial institutions as well as investors. For the financial community, it offers the benefits of digital transformation, while for investors, it provides the twin advantage of digital portfolio management and the human advisory in making investment decisions. The unique aspects that robo-advisers bring to their clients are low cost, transparency and convenience. Diligent ledger keeping is an added advantage, easing the pain of maintaining physical records.

It is assumed that “robo” in robo-adviser implies a platform that is automated and does not rely on human intervention, thereby being unable to offer personalized services. However this is not true. There is also a perception that robo-advisers have limited investment options and one approach for all customers, and that theyfocus on investors with low investment capabilities. However, the fact is that most robo-advisers do provide human intervention. Clients are able to speak to or chat with representatives on the platform or on the mobile.

Digital Collaboration – Stepping up on Value Creation

The need of the hour is digital collaboration – which is vital for advisers to be successful. A key to this will be the integration of robo-advisers into customers’ current technology ecosystem as well as a degree of human intervention to ensure that the process is smooth and provides comfort to the customer.

With digital platforms undergoing an evolution to mature into comprehensive and robust systems, and automation moving notches higher, robo-advisers will have to move up the value chain, and look at newer avenues of advising clientele, as the entire industry gravitates towards an era of value.

Gaurav Dhawan

Written By

A mechanical engineer, Gaurav is armed with MBA in finance and marketing from T. A. Pai Management Institute, Manipal. With close to a decade's experience in development and deployment of portfolio strategies for premium private banking clients, he knows what it takes to build relationships, gain trust and deliver every promise. Prior to founding Credence Multi Family Office, his assignments included building the high net worth client book at Citibank along with being an advisory on their portfolios.