What is a Robo Advisor ?

What is a Robo Advisor

A robo-advisor is basically an automated service that offers you advice on managing investments by a computer algorithm and also helps you buy some financial goods. A robo-advisor network can also contain human financial advisors, but only for services that need human assistance like taxes or retirement.

Robo-advisors are naturally low-cost and attract fresher investors who are more contented doing things online. The tools they work to manage client portfolios differ slightly from the portfolio management software already widely used in the profession. The main alteration is in the distribution channel. Till now, portfolio management was almost entirely conducted through human advisors and sold in a package with other services. Now, consumers have straight access to portfolio management tools.

The main focus is on money management advice. The interactions are about financial goals such as retirement, tax planning and regular investment. You have access to asset management and financial planning, all based upon the algorithm.

Until now while investing, you had only one of two options when investing:

  • Do-it-yourself (DIY)
  • Hire a financial investment advisor (FIA)

The issue with getting FIA was that many have minimum asset requirements of $500,000 or greater. This requirement places many FIAs out of reach for fresher or lower-net-worth individuals. The introduction of Robo advisors helped in pushing down the costs of advisors that offered no real value.Also, these firms are helping individuals with setting goals and rightful allocation of assets.


  1. Automated Mode

In this, you select among the various offered packages. You get to select what you need, and then stay invested. The aim is to reach out to the young earners and new investors.

Example – Scripbox, is an online Mutual Fund investment service firm which offers three ‘boxes’—equity, fixed income and tax-saving.

  1. Direct plan based

Companies also offer a low-cost direct plan option. You can also switch your existing mutual funds into direct plan. There may be a insignificant advisory or convenience fee involved to transactions.

Example – Companies such as Bharosaclub.com, Orowealth.com and Invezta.com.

  1. Goal based advisory

Such a robo-advisory is structured on fund allocation, which means fund selection is an outcome of the data you provide. These websites offer simple advisory on how to approach your long-term investments, the option to only transact, which allows you to simply login and buy the funds you need.

Example – FundsIndia.com

  1. Full service

In case you need in-depth advice,a full service robo-advisory  will ask you to answer a thorough questionnaire to measure your risk appetite, financial goals, saving and spending pattern and existing asset liability situation.

Example – ArthaYantra and Aditya Birla MyUniverse.


Robo advisors achieved about $19 billion as of December 2014 directly according to Corporate Insight. By 2020, the worldwide assets under management of robo advisers is predicted to grow to US $255bn, according to a report by MyPrivateBanking Research.

The Vanguard of U.S. is the leading robo advisor in terms of assets as of February 2017 with Assets under management of $47000 million.

How to get started?

To get started on a robo advisory platform, you need to create an account. Some platforms, particularly if they permit transactions, will ask you to add bank details, Permanent Account Number (PAN) and know-your-client (KYC) details. While buying a mutual fund, you can select a systematic investment plan or invest a lump sum.

Robo Advising
Robo Advising

Need for human intervention 

Robo advisory works well until markets are positive. Though, support is required when events go sour. In the current situation, there is no method to know whether these portals will be able to help investors hold on in rough times. Behavior plays a better role when it comes to giving good and adapting returns. This is where human intervention helps.


  • Overall – Wealthfront and Betterment charge low management fees, sensible minimums and innovative tools.
  • For Free management  –  WiseBanyan and Charles Schwab Intelligent Portfolios offer portfolio management free of charge, nevertheless the investments used ,primarily exchange-traded funds, still carry expense ratios.
  • For access to a financial advisor – The finest of these services come from Vanguard Personal Advisor Services and Personal Capital.
  • For Taxable Accounts – Wealthfront and Personal Capital offer superior tax optimization services for customers with taxable accounts.
  • For IRA Management – Betterment and newcomer Fidelity Go offer the best quality resources for retirement investors.

Eventually, its portfolio performance that will matter. So, the algorithm has to be correct and better than others in picking and reviewing the recommendations. It’s too early to judge the existing platforms ,but as robo advisory prevails in the market more, results will suffice.

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