The evolving role of Robo-Advisory in financial services in India and the future ahead

Retail investors frequently turn to established financial institutions or financial consultants to get started, especially those who are young and inexperienced, but they rarely get the results they hoped for. For starters, relatively few companies in this market perform in-depth needs-based analysis and offer tailored solutions based on the results. However, quality financial advice is expensive and relatively few small investors can afford it. In these situations, robo-advisors are chosen, which help clients navigate the complex world of financial investments efficiently and cost-effectively.

Automated investment platforms called “robo advisors” offer algorithm-based solutions after assessing a user’s financial situation (current assets and cash flow), goals, aspirations, time horizons, tolerance for risk and capital market expectations. Robo-advisory has been around for quite some time, and although it is now a very big industry globally, it is also growing rapidly in India, thanks to growing financial awareness at all levels. Also. While private banks and wealth managers need to create more distinctive offerings to successfully respond to better express the value they provide and better support their fees.

There are already 85 robotics consulting firms in India, with Mumbai and Bengaluru having the most, with 27 and 23, respectively, according to data from Tracxn, a data analytics startup. However, as robo-advisory has grown in acceptance and popularity over the years, smaller towns have also seen their fair share of such ventures.

How do Robo Advisors work?

The fundamental objective of a robo advisor is to advise clients on their investments and help them build their financial strategy. Users must enter the required information, describe their financial goals and indicate their risk tolerance on a robo-advice platform. The software analyzes these factors to generate a score for each individual after receiving all relevant data (periods, risk appetite, goals, nature of work, age and other financial characteristics), then develops a corresponding portfolio based on this score and manages it. independently.

In order to complement the services of a traditional financial advisor, robo-advisors often use investment algorithms based on artificial intelligence and machine learning.

What types of Robo Advisors exist?

Fund-Based Robo Advisors

Fund-based Robo Advisors make goal-based recommendations to their clients based on their level of risk tolerance. The majority of investment recommendations relate to funds, which are a single class of assets that can be managed or traded on an exchange.

For new and seasoned investors with a limited tolerance for risk, fund-based Robo Advisors are a viable option.

Stock-based robo-advisors

As their name suggests, they mainly focus on equity investments. These equity-based investments are suitable for seasoned investors with a moderate to aggressive risk appetite, in-depth knowledge of the equity market and its characteristics.

Complete wealth advice

The primary objective of Comprehensive Wealth Advisory, also known as Comprehensive Robo-advisor, is to provide investors with 360-degree financial solutions aimed at increasing their financial net worth. The comprehensive Robo Advisor pays close attention to the investor’s current financial situation, future financial goals, and risk tolerance to create a comprehensive, individualized financial plan that attempts to achieve the investor’s financial goals .

The young and growing robot market

Even though the value of assets under management, or AUM, for the Indian Robo advisory category may be lower, it is unquestionably growing at a steady rate relative to the proportion of conventional investors versus millennials and age-old investors. generation Z in the market.

The future of India with robo-advisors

Similar to sophisticated markets like the US, UK and other countries adopting advanced technology, India’s robo-advisor is currently in phase 3.0 and expected to upgrade to phase 4.0.

Due to the complete digitalization of financial advisory services, the emergence of fully automated robo-advisors will further reduce current costs and streamline the fee structure in this market segment. The three areas of potential savings are personnel costs, operating expenses and capital expenditures.

Based on current trends, experts predict that a hybrid robo-advisory model combining the best of traditional and digital services will soon develop in the country. It will essentially be robo-advisors powered by AI and ML, with alternatives for interacting with human advisers.

Additionally, M&A activity in this sector has already been observed by the market. To grow their own businesses and user bases, existing and potential fintech players can purchase significant robo-advice with the intention of entering the financial advisory and wealth management industry. In terms of growth and technological advancements, robo-advisors could have an exciting future for a very long time.

(The author is Mr. Vineet Tyagi, Global CTO, Biz2X and the opinions expressed in this article are his own)