Portfolio management because of increasingly sophisticated technology platforms will become the norm in the investment management industry. The benefits will accrue to self-directed investors and savvy financial advisors who leverage the technology.
Today robo-advisors are turn-key investment platforms employing algorithms based on modern portfolio theory to construct and manage portfolios. A critical competitive advantage robo-advisors have over flesh and blood advisors is that, for the most part, they are significantly less costly.
For a select and growing cohort or tech-comfortable investors – individuals and institutions – these platforms, as they continue to increase their functionality, will become the principal if not exclusive way they will invest. This will be a relatively slow incremental process as decision-making authority shifts from many of the “old guard” and their entrenched way of doing things.
It is with the shrewd, astute financial advisors that the robo-advisor revolution will move fairly quickly. Presently, among financial advisors catering to individuals, awareness of robo-advisors is in the early stages. Moreover, these technology platforms are just now being rolled out to enable financial advisors to use them on behalf of their clients. What is very likely to occur is that a sizable percentage of financial advisors will begin to incorporate robo-advisors into their practices enabling them to utilize their time more efficaciously as well as concentrate on providing a broader range of financial solutions to their clients while mitigating costs.
The reason robo-advisors will dominate the investment management industry is that investors are focused on results. The ability of robo-advisors both as stand-alone complexes for self-directed investors and as resources for financial advisors to deliver results comparable to what is otherwise available will be the determining factor. Consequently, the technology will, in time, be ubiquitous in the investment management industry as performance will be on par with most investment advisory alternatives.
As robo-advisors evolve by incorporating cognitive computing capabilities coupled with simpler user interfaces, the use of these technology platforms will greatly expand. The result will be an increasing cohort of self-directed investors. The evolution of robo-advisors will also result in a dramatic bifurcation of financial advisors. There will be a relatively small but exceedingly profitable group of financial advisors and those that will be taking on a diminished role.
This article was written by Russ Alan Prince from Forbes and was legally licensed through the NewsCred publisher network.