Sergey Sosnov

Robo-Advisors: How Human Talent is Reinforced by Tech

Algorithms

Developments in fintech over the past few years have led to a rise in the use of robo-advisors by wealth management services. Robo-advisors have helped enhance efficiency and productivity within these services, benefits that have been passed onto clients.

However the use of robo-advisors has been misinterpreted at times. Many believe that they are just algorithms that allow investment without the flaws of human emotions and decision making. This is true but the robo-advisors are backed by the knowledge and experience of humans. Without this knowledge, robo-advisors would have never been invented.

What do humans bring?

Every service using robo-advisors cannot work without collaboration with humans. Humans have a formal financial education, they understand how the markets operate and they understand the principles of investing. Robo-advisors need to be backed by these principles and the many years of experience that humans bring. Financial markets fluctuate in ways that cannot be accurately predicted by machines and human talent is required to assist in the understanding of markets. In addition, wealth managers such as Zen Assets develop the questions that are used in risk tolerance assessments. Without all of these, robo-advisors would not be able to determine what investments are best for clients. An example of a free risk tolerance test.

An example of how an automated wealth management service works

What do the robo-advisors do?

The robo-advisors work on algorithms that use a risk tolerance assessment to develop a selected portfolio of investments that meets client needs. They track the performance of investments and ensure that if any rebalancing is required, it is automatically executed. In addition, the development of robo-advisors has allowed for the automation of some processes in investment management. These processes in turn help wealth management services to save costs that can then be passed onto clients.

The collaboration of humans and robo-advisors has led to a new way of investing that is more cost-effective, efficient and productive. One is unable to work without the other in this new era of investment and portfolio management.

Sergey Sosnov

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