What Is a Robo-Advisor?
A Robo-adviser (also sometimes known as an automated adviser) is a digital platform that provides automated, algorithm-driven financial planning services. Robo-advisers replace as much human interaction with artificial intelligence by collecting information about their clients ranging from their financial situation and risk tolerance to their long and short-term goals.
With lower fees and 24/7 accessibility, Robo-advisers have been gaining significant popularity and have become very common; but like any qualified professional, it’s important you understand the relationship and risks involved.
Things to Consider
Human interaction: While some programs have investment professionals available to answer questions, others may just have technical support staff, leaving you to rely on other sources for investment questions.
Limited information: Robo-advisers only know what you tell them and what they’ve been programmed to do with that information. This means they may be making financial decisions with limited information.
Investment choices: Robo-advisers have different, and potentially limited, investment products depending on which platform you choose.
Unique business model: Algorithmic decision-making and limited human interaction may increase your exposure to risk; this should be addressed through the company’s written policies and procedures.
Regulation: There isn’t a separate registration process or exemption for robo-advisers, and Know-Your-Client (KYC) and suitability obligations of portfolio managers also apply to robo-advisers.