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02 Jun 2018

3 things to consider when choosing a robo-advisor

In the fin-tech age we live in today, the term robo-advisor or robo-advisory gets thrown around a lot. Let’s dive into what it is about and the three basic steps to consider in choosing one.

A Robo Advisor (or robo for short) is basically a service largely based on cleverly-programmed algorithms that trade and invest your money. It is a modern equivalent of an advisor whose actions and decisions of what to do with your investments are automated, with varying extents.

While the easy lure of robo advisors are its competitive prices and the of award-winning algorithms and statistical models with less human-factors, there are important factors to note when choosing one, especially because not all of them are created equal.


1. There is always a human behind the robot

Be diligent in doing your homework. The best robots and algorithms in the world are still programmed and managed by humans. Be careful in evaluating their investment strategies and how they dynamically adapt to the ever-changing forces of the market. Some robos have different specialities and concentrations on certain products, or regions.

All these factors have to be comfortable to your palette and your risk nature, so be sure to have these aligned with yourself. It is also important to check their communication mediums with you, and how available or responsive their customer service is. Should the need arise to deal with robotic issues, the last thing you would want is having another robot help to solve them.


2. Track Record & Contingencies

Robos have not been around long enough to be thoroughly stress-tested by time, so it would be good to initiate a chat on their stand and strategy towards major market changes. Many will claim superior methodologies, but results speak for themselves. As mentioned above, look into the humans behind the robots and be sure their experience and expertise is at the level that can instil confidence in you.

Even robots should have resumes and report cards. Do your research on their historical performances since their genesis, with other sources apart from their websites, which tend to only show the good trends and short-term results. Go the extra step and look into how they implement systematic risk and crisis management. Should they not be able to answer you, that should be a red flag.


3.  Transparency and Clarity on Fees

Most robos will market themselves as having lower fees than a traditional financial advisor. While that is true for some cases, you have to be careful to read the fine print especially when it comes to transactional fees and tax considerations. A good robo-advisory should be transparent in all transactions and methods they use.

You should also take time to first understand your habits and nature in how frequent you’d like to adjust strategies or take money out. Factor this into the different tiers of fees they offer and the minimum amount needed to make sure you are comfortable with the final sums.

Taking the human factor out can sometimes be refreshing, but if you aren’t careful, a systematic action that is allowed to keep repeating without human intervention can either be extremely rewarding or disastrous.

In conclusion, no robot can know you better than yourself. To be sure, always consult with someone you trust to tease out your real risk appetite and investment nature before allowing automation to take control.


For a more in-depth comparison of the leading robos in Asia:

Kaplan will be making public a recent ranking of them on June 7, 2018, so do keep a lookout.

Interviews and a hard copy of the full report are available on request.


This article is contributed by Qiuyan Tian, Co-Founder of Hive Up.