Robo Advice Vs Traditional Advice

Financial advice is falling into two categories; Robo and human.

Robo advice uses technology, algorithms and automation to inform decisions and break down data. In doing so it is able to monitor and optimise thousands of actions in real-time.

Traditional advice is built on human expertise and decision making. There is also an emotional component that informs investments, regardless of expertise and pedigree.

While there are exceptions, studies show that irrational behaviour consistently costs investors money. By automating best practice decision-making, Robo Advice removes emotive human bias.

However, a financial advisor does more than invest; they also communicate and educate their clientele. This human connection is important to many investors.

It’s one of the reasons hybrid models exist in Robo Advice; where digital services are still overseen by investment managers. For more information on the types of Robo Advice — click here.

With less human involvement and more automated processes, Robo Advisors are able to offer significantly lower fees compared to traditional advice. For the same reason they also require lower opening balances. This greatly democratises advice making it far easier for investors and younger demographics to access the markets.

Robo Advice uses ETFs. These are in essence a group of stocks or bonds traded on an exchange. By using ETFs investors are able to spread assets across thousands of companies rather than a select number of stocks. This inherently creates a diverse portfolio, which can be matched to goals and risk.

While Traditional Advice can still be diverse — the number of stocks in a portfolio are less, which means stock selection is absolutely paramount. Active stock management can yield strong returns but carries greater risk.

Because Robo Advice is built on technology and automation — providers are often able to utilise these same tools to give customers a unique level of data and choice. It’s extremely easy to personalise investments, track holdings and access portfolios in unprecedented detail.

These innovations are slowly coming across to traditional advice but a key difference is the way the two services are structured. Rather than being a foundational aspect of the service (like Robo Advice), traditional advice is looking to incorporate personalisation and transparency as value add-ons.