Robo-advisory is the concept of using automation and digital techniques, such as algorithms, to manage and build portfolios for investors with minimal human intervention.
Like any form of investment, the value of your money can decrease as well as increase when you invest with robo-advisors. To help you decide whether this form of investment is for you, we’ve listed the advantages and disadvantages of robo-advisors below:
- Low Fees
For many investors traditional financial advisory fees have become unaffordable. The higher levels of automation that robo-advisors can provide means that they can offer lower fees than traditional wealth managers or financial advisers.
- Low Minimum Investment
Robo-advisors tend to have lower minimum investments than traditional wealth managers. For example, OFF3R partners Moneyfarm have a minimum investment of just £1. These lower minimums are due to the lower overheads of robo-advisors and the cost-savings that can be made via ETF trading.
Many people want to start to invest in the markets but don’t want the hassle or time commitment it takes to build their own investment portfolio. Robo-advisors offer a good option for these investors as the platform allow you to sit back whilst they invest your money in a diversified portfolio. But investors need to be fully aware that their investment can fall in value as well as rise.
- Exchange Traded Funds
ETFs are fully transparent of the assets that make up the fund, they entail low management fees and they trade daily, therefore whenever the stock exchange is open, robo-advisors can adapt the portfolio in line with any fluctuations.
- Lack of Personalisation
Whilst technology has made significant advancements, there is still a long way to go before robo-advisors are able to deliver the same level of personalisation as a traditional IFA, wealth manager or a do it yourself investor.
- DIY Investment
For the younger generation, brought up surrounded by the use of technology, this is a natural progression. They can quickly and relatively cheaply invest for the first time via a technology enabled solution. But for those older investors that are used to the traditional finance marketplace, and the reassurance of human interaction when making financial decisions, this may hold back some investors from signing up with a robo-advisor.
Your capital is at risk with investments of this nature. The value of your investment can go down as well as up and you may get back less than you invest.