Introduction to Robo Advisors

• Robo advisors offer retail investors convenient and low-cost access to discretionary portfolio management and investment advice using algorithms, apps, APIs and automation
• Robo advisory businesses first appeared in the wake of the financial crisis, when investors facing sharply negative returns started to focus on why they were paying such high fees to traditional investment advisors and on the opaqueness of the service they were receiving
• Regulatory reform in the wake of the financial crisis – such as the Retail Distribution Review in the UK which created an advice gap – provided a tailwind for robo advisors, along with changes that have given individuals responsibility for investing for retirement
• Developments in technology, notably cloud computing, have enabled robo advisors to scale effectively
• The rise of passive investing and ETFs has enabled robo advisors to access liquid robust, rules-based portfolios at some of the world’s largest asset managers for a fraction of the cost of traditional actively-managed funds

Identify the reasons for using a robo advisor

• Automation and technology provide access to lower cost and more convenient solutions than traditional alternatives
• Transparency: easy tracking of investment portfolios and fee break-down
• Emotion-free investing: robo advisors make all the investment decisions according to clients’ risk tolerances using technology
• Well suited to time-constrained investors

Define WealthTech and its future drivers

• WealthTech – the use of technology in the wealth management and investments world – has arrived: thousands of firms worldwide would classify themselves as sitting within this segment of FinTech
• Incumbents in the traditional investment management sector are under pressure to quickly digitally transform their businesses
• Most banks, asset managers and wealth management firms are expected launch robo advisors or partner up with a robo advisor in the next five to 10 years
• The integration via new technologies such as Open Banking with other areas of finance is facilitating delivery of better robo advice solutions