Robo-advisors are digital platforms that provide financial advice with the help of algorithms, software and external data without any human resources. Instead, they use virtual wealth managers to guide consumers through various investment options.

These Robo-advisors monitor your portfolio daily at a meagre management expense ratio (MER). Consumers can now easily access information online; they do not need to spend so much effort to find financial planners. Having easy access to automated software makes finding planners unnecessary.

Most people’s needs can be met by investing in index funds or exchange-traded funds (ETFs), which mimic an entire market rather than individual companies—because of this, having human advisors is no longer necessary, according to some economists who view Robo-advisors as the future of money management.

However, finance experts say that while Robo-advisors may be great for simple portfolios, they cannot provide in-depth advice on complicated tax issues and other financial strategies.

People with more complex investments such as real estate and businesses need more than just a set of algorithms to handle their finances.

Financial advisors can help them better understand investment options available to them to make informed decisions later on.

Who should use Robo-advisors?

Robo-advisors are ideal for beginners looking for an easy way to start investing but not recommended for those with specific requirements or who want to explore multiple avenues before making their final decisions.

Employers or companies often offer regular savings plans as part of their compensation package. These are usually in the form of unit trusts, endowment plans or fixed deposits which are low-yielding investment products offered by financial institutions to consumers who need interest or dividends on their investments.

This means that people will have to put in the additional effort to achieve higher returns with their savings.

On average, regular savings plans yield 2%, while index funds can deliver between 6% and 12%. Robo-advisors can also not offer tax advice, unlike human financial advisors. The Consumer Council of Singapore warns that “if you go for a Robo-adviser, you may not get the same protection when there is a problem” as compared to working with traditional finance planners.

While Robo-advisors are great for beginners, they cannot offer the same level of service as conventional planners. For an initial consultation with a financial planner or advisor, make sure to visit this page.

Robo-advisors are financial technology tools that provide automated, algorithm-driven financial planning services. Robo-advisors was introduced in Singapore in 2014 and has gained significant market share over the past three years.

Since then, it has been projected that Robo-advisor firms will hold about $2 billion of assets under management (AUM) by 2020.

Advantages

There are many advantages to Robo-advisors for retail investors in Singapore compared with a regular savings plan:

Expense Ratio Fees

Robo-advisors have much lower expense ratio fees than actively managed funds they replace due to the standard cost factor associated with operating online without physical presence. For example, Wealthsimple offers an expense ratio fee of 0.5% compared to 2.5-3.5% for actively managed funds, translating to about $300 million in savings over the past five years.

Financial Independence

Robo-advisors provide tools that consider multiple risk factors and financial goals rather than just choosing investments based on performance alone.

This allows investors to build their portfolios to independence from daily money worries or financial stress.

The algorithms behind Robo-advisors use proven strategies that are scientifically made based on market probabilities, thus freeing them from emotional biases and giving peace of mind to retail investors who prefer certainty over high returns.

Automated Decisions

Robo-advisors use artificial intelligence (AI) technology to automate investment decisions. This reduces the time commitment for financial planning while giving investors some control through customizable features.

Accessibility

Robo-advisors are available to retail investors 24 hours a day, seven days a week, with calculators that can be used on mobile devices anytime and anywhere.

Better Returns

Robo-advisors are designed to deliver better returns at lower risk by using globally diversified portfolios of assets, including stocks, bonds, ETFs and money market funds.

As of 2015, Robo-advisors have outperformed actively managed mutual fund products in the US by an average of 0.79%.

Control over Investments

Retail investors find it challenging to manage their investments due to a lack of time or knowledge about how markets work. Robo-advisors allow for ease of investment management while still giving control to retail investors.

Improve Financial Literacy

Robo-advisors teach people how to invest in the long term, allowing them to make better financial decisions and minimize their losses.

As users gain more experience with Robo-advice tools, they will be more prepared when the time comes to manage their investments without guidance from these automated planning tools.