Beyond Chatbots: Why Robo Advisors are the Hot New Trend in Fintech

Last Updated on: August 7, 2023

Chatbots are a great way to answer simple questions quickly, but they tend to lack specific knowledge about certain technical topics like investment strategies and tax-related questions. This is where Robo advisors come into the picture to help. 

Everyone is talking about them, but few people truly understand what they are and how they work. In this article, we are going to dive deep into Robo advisors to understand what they are about and whether banks should implement them or not. Let’s dive in. 

What are “Robo Advisors”? 

A Robo advisor is an AI, software technology that uses a computer algorithm to help individuals invest and take control of their finances without having to rally the help of a human advisor. Robo advisors offer services similar to human investment advisors but with lower fees and with greater accessibility than traditional investment advisors have been able to provide in the past.

As the “Robo advisor” trend continues to take off, there are many questions as to what it really means for the future of fintech and investing in general. Many businesses in the fintech space are wondering if Robo advisors may be the key that they’ve been missing all along (and for a good reason). 

Why is There a Push for Robo Advisors in 2021?

As technology advancements continue to push forward, it’s now more important than ever before to make sure you have plenty of digital options for your customers. From digital marketing to customer service, you want to ensure that with every customer touchpoint you have, there is a digital option to coincide with it. 

So, why is there a push for Robo advisors in the fintech industry? AI and machine learning have been the main topic of conversation in fintech for a few years now. Banks and capital markets firms have been investing heavily into making their products better by implementing this new technology. But, is it worth it? Let’s look at some of the benefits of having Robo advisors in the fintech industry. 

• Robo Advisors are Cheaper

A Robo advisor charges an annual flat- fee of 0.2% to 0.5% of a client’s total account balance. This stark price difference is one of the main draws to why individuals hire a Robo advisor instead of a real advisor. What’s the cost difference of hiring a Robo advisor compared to hiring a real advisor? Well, let’s take a look.  

Robo Advisor vs. Financial Advisor: A Price Breakdown

There are two different types of pricing models when it comes to hiring a real financial advisor: the Assets Under Management (AUM) model and the flat-fee pricing model. 

With the AUM model,  financial advisors charge an annual fee of 1%- 2% per year on average. This price tag can be extremely costly — especially if you have a larger investment account with a financial advisor. 

Example: To put this in perspective, if you had $500k in investments, you would owe $5,000 a year if you were charged an annual fee of 1%. This example is on the lower end of the sliding scale too. So, if your advisor charges 2% annually, you would expect to pay a fee of $10,000 per year. As you can tell, this fee can add up quickly in the long run. 

On the other side of the spectrum, live advisors may use the flat-fee pricing model instead. By using the flat-fee pricing model, your financial advisor can cost you anywhere between $2,000-$7,500 per year. Again, even with the flat-fee model, hiring a live advisor can be costly (depending on what tier of client you are to the advisor). 

• There is a Low Barrier to Entry

Another benefit to hiring a Robo advisor is that you can open an account with little to no account balance. This means that you no longer have to reach a certain income threshold to get investment advice from a virtual advisor. Robo advisors are accessible to anyone and everyone across all income levels making it easier than ever before to get assistance with personal finances in a matter of only a few clicks. This is another reason why Robo advisors are taking off and paving the way in the fintech industry.

• Robo Advisors are “On Call” 24/7

Robo Advisors are also “on-call” 24/7. So if you have a question in the middle of the night, you don’t have to wait until normal business hours to ask your Robo advisor a financial question. Robo advisors are always available to answer any financial inquiries that you have to ensure that you are on the right track to meet your financial goals. (And as a bonus, Robo advisors can get back to you faster than a human advisor ever could!) 

• Robo Advisors Aren’t Confined by Geographic Location

Many financial advisors can only offer financial advice to those who fall within their state and/or jurisdiction. With Robo advisors, geographic location isn’t an issue. Robo advisors aren’t confined by the same governing laws as a real advisor would. This is great news for those who are in different time zones across the world. You no longer have to worry about switching over advisors when you move to other places on the map. Your Robo advisor will follow you and give you the same great advice no matter where you fall on the globe, unlike a human advisor. 

How to Hire a Robo Advisor: Robo Advisor Companies

Thinking about hiring a Robo advisor? Here are some popular Robo advisor companies to check out: 

• SoFi Automated Investing
• Wealthfront
• Betterment
• Vanguard
• Stash
• Shootih

Plan for a Better Tomorrow

All in all, the Robo advisor trend isn’t slowing down anytime soon, and now is the time to hop on board the Robo advisor train to meet your customers where they’re online. So, if you are looking to improve your customer experience and digitize your customer touchpoints, consider Robo advisors. They may be the missing piece to the puzzle that you didn’t even know was missing.