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The finance industry started experimenting with the first chatbots quite early on, still in the 20th century. Thus, it should not surprise you that now, after years of technological progress, it has achieved a completely new level of sophistication in this field. AI-powered robo-advisors are becoming widely used by market leaders, offering new opportunities to both clients and banks. How does this work? Find it out in this article!
Table of Contents
- What Is a Robo-Advisor?
- What Services Do Robo-Advisors Offer?
- How AI Impacts Robo Advising?
- The Takeaway
What Is a Robo-Advisor?
A robo-advisor is a type of platform offering automated financial services to a given organisation’s clients. In the past, such platforms utilised algorithms along with surveys to determine your goals, plan your investments and offer potential opportunities based on algorithmic trading. Nowadays, this changes as robo-advisors get smarter, mainly due to the widespread development of AI.
What is interesting about robo-advisors is that they are derived not from chatbots per se but rather from portfolio allocation software and algorithms used by wealth managers in the early 2000s. At the time, only wealth management firms could afford such software, so a regular client needed to work with a consultant to get access to it; with robo-advisors, this became widespread.
What Services Do Robo-Advisors Offer?
Robo-advisors are capable of performing several tasks crucial for wealth management, namely:
- investing (automated),
- portfolio rebalancing (automated),
- tax optimisation,
- personalised financial planning.
Naturally, robo-advisors may have additional banking features. However, the above are the most common ones that you should find in most such solutions.
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How AI Impacts Robo Advising?
AI is smarter than algorithms; hence, its impact on robo-advising is significant. In what ways does it enhance such solutions?
Going Beyond Finance
AI-powered robo-advisors no longer rely purely on financial data. Instead, they can analyse news, social media feeds and other general-access information. When based on machine learning, such systems can recognise patterns in the data gathered from the web and predict market changes and trends even more accurately.
Naturally, such robo-advisors then base their investments on their predictive insights. The result? Clients invest in assets that are more likely to gain in value.
Personalisation
Hyper personalisation in banking is a trend that is bound to get stronger every year. Artificial intelligence is the main driving force behind it. Hence, it impacts all areas that could be personalised, including robo-advising.
With AI, robo-advisors no longer need to rely on surveys; instead, the user can talk directly with an AI-powered chatbot. Thanks to this, robo-advisors can better understand their users and provide highly customised services—investments tailored to each individual’s needs.
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Truly Data-Driven Decisions
How much data can simple algorithms process? How accurate are they? The answer to both questions is not much, especially when compared to artificial intelligence. AI is much more effective than algorithms; hence, basing a robo-advisor on it, even without the additional perks mentioned above, should already improve its services.
However, here, you need to remember about one potential danger. Since AI works on data, you need to cleanse your information and ensure that it is unbiased. Otherwise, the conclusions made by your smart robo-advisor might be inaccurate, and the investment opportunities they propose bear a higher risk for the clients.
The Takeaway
So, are AI-powered robo-advisors worth it? Absolutely—you need to implement them in your wealth management branch. They will likely play a key role in the future of banking.
You might also read: AI Act—What Is It? Who Does It Affect? What Will It Change?
