Since 2008, some start-ups and asset management companies have begun to introduce Robo Advisor services. Through online trading platform, enterprises directly provide investment solutions to customers and reduce their dependence on investment consultants.
Robot Advisor services are regulated
When artificial intelligence enters the investment field, it is watched by regulators. In the United States, robotic investment advisors need to be established in a registered investment advisory firm and regulated by the Securities and Exchange Commission. The United Kingdom and Australia also have government agencies to supervise robot investment advisory services. Despite differences in local regulatory legislation, robotic investment advisers follow a similar level of code of conduct.
Hong Kong also implemented the “Guidelines for Online Distribution and Investment Advisory Platform” on July 6 to strengthen the supervision of mechanical financial advice. It is suggested that the rationality of the test, review and assurance of the advice provided by the financial advice platform should be the responsibility of “persons with appropriate qualifications”.
Current status of robot investment consultants
The Robot Advisor service begins with knowing your customers, and the common way is to understand the characteristics of the customer through a questionnaire. In general, features fall into three categories, including general information, risk tolerance, and risk appetite. When receiving customer data, the machine generates recommendations that are appropriate for the customer through established rules and historical data. According to Michael Tertilt and Peter Scholz, robotic investment consultants do not necessarily apply all customer information into investment advice. For now, Robot Advisor services include automated asset allocation, execution of transactions, portfolio optimization, and portfolio rebalancing.
According to the degree of automation, current robot investment consultants can be divided into fully automatic and assistant modes. Automated robotic investment consultants are separated from real financial advisors and can provide a portfolio at the lowest cost. Usually the service includes deposits, regular balances, and dividend reinvestment. The assistant mode still has financial advisors and customers services to communicate. Analyse the client’s assets and liabilities through a rules program and provide more information to financial advisors and customers.
Advantages and disadvantages of robot investment consultants
High-net-worth users usually have someone to take care of, but the mass market often lacks the manpower or resources to manage it. The emergence of robotic investment consultants can make up for the vacancies. The mass market can get professional investment services at a lower cost. On the other hand, robotic investment consultants invest in accordance with established rules, which means that investment strategies are more transparent and investment decisions are more objective.
However, robotic investment advisers use passive investment vehicles, investment advice tends to be conservative, and may lose the opportunity to actively manage to bring additional benefits. In addition, when investor portfolios become complex, or financial products are responsible, robotic investment advisors need to be further developed to adapt to changes in new financial markets.