What if you didn’t have to visit a financial advisor to set up and manage an investment portfolio – and all you had to do was download an app or visit a website, and your investments are handled automatically and at a lower cost to you? In this article, we break down the pros and cons of using “robo-advisors” to manage your investments.
Robo advisors have gained popularity overseas over the last 5 years, and there are now a growing number of companies in Australia offering a range of financial products and services based on computer algorithms.
What is Robo advice?
Robo advice is any financial product or service which leverages computer technology instead of human advisors to deliver advice to end users. Robo advisors are commonly used for investment products – where your portfolio is tailored to your objectives and automatically updated by the underlying computer algorithms.
Cheaper is not always better
One of the main reasons robo-advisors have gained popularity for managing investment portfolios is their lower fees. So you might want to try these products if traditional (human) financial advice is unaffordable. However, if this the case, start small and diversify – don’t invest all of your money with the same robo advisor or suite of products. Invest a smaller portion and understand the ins and outs of their product and methods and increase your investment as you grow more comfortable.
Here are some things to look out for:
– Ask about the people behind the cool technology – The computer algorithms didn’t write themselves! So make sure you do your research on the experience and investment track records behind the people and companies offering these products.
– Make sure your robo-advisor has an Australian Financial Services License (AFSL) or is an authorised representative of another company which does hold an AFSL.
– Understand the total cost of using the robo-advisor – make sure you read the fine print and understand how you will be charged at the outset and as your investments grow.
In the coming years the number of automated financial product and services will grow, offering consumers more choice and better deals – so do your research and give them a try!