Robo-advisor

Robo-advisors or robo-advisers are financial advisers that provide personalized financial advice and investment management online with moderate to minimal human intervention. A robo-advisor provides digital financial advice that is personalised based on mathematical rules or algorithms. These algorithms are designed by human financial advisors, investment managers and data scientists, and coded in software by programmers. These algorithms are executed by software and do not require a human advisor to impart financial advice to a client. The model investment portfolios are constructed by the firm's investment committee. The management of each of the client portfolios, including rebalancing, is automated.

Robo-advisors are categorized based on the extent of personalization, discretion, involvement, and human interaction. There are over 100 robo-advisory services. Investment management robo-advice is considered a breakthrough in formerly exclusive wealth management services, bringing services to a broader audience at a lower cost than traditional human advice. Robo-advisors collect financial situation information from the client to determine risk tolerance. Then, robo-advisors allocate a client's assets on the basis of risk preferences and desired target return. In so doing, robo-advisors align clients’ choices with those an expert decision-maker following standard economic optimization models would make, which many clients may be unable to do due to limited financial literacy and expertise. While robo-advisors have the capability of allocating client assets in many investment products such as stocks, bonds, futures, commodities, and real estate, the advice is often directed towards exchange-traded funds. Clients can choose between offerings with passive asset allocation techniques or active asset management styles.

Robo-advisors that provide investment management service create a discretionary managed account for each of its clients.