How to select your robo-advisor

Make a choice based on your comfort level and complexity of the situation

The advent of technology in personal finance has empowered investors to take prompt actions with respect to investment decisions and managing portfolios more efficiently. Also, professional advice available at one’s convenience for a fraction of the cost opens up new opportunities. Harnessing the potential of the new trend, many fin-tech start-ups have started focussing on innovating a robo-advisory model, an algorithm-based money management tool.

However, with many robo-advisory platforms available in the market, ranging from simply goal-based planning to hybrid-models to fully automated-models, the selection of the right platform becomes important to investors. There are 5 key parameters to be examined while opting for a robo-advisor.

Addresses your needs: First, identify a platform which fulfils your investment needs or goals aligned with your basic profile. With a wide range of online choices offering different models, the robo-advisor should be selected based on your comfort level and complexity of the situation. For a simple goal-based planning, you may not require the intervention of human assistance, but for complex financial planning like estate planning, taxation, etc. you may need a hybrid model which offers the services of human advisors too.

Professional management: The primary function of a robo-advisor is to provide professional-level portfolio management, especially to a retail investor who doesn’t have access to a research-based advisor. It should have an integrated process which is easy to comprehend for any user. There should be periodical interaction between you and the robo-advisor platform with respect to portfolio rebalancing, other financial planning or important updates on market events affecting your portfolio.

Fee/cost structure: Technology in the financial industry should provide a cost-efficient business model with ease of operation.

The robo-advisor platform was designed to offer convenient professional-level money management, particularly to retail investors at minimal cost. Thus, it is imperative to evaluate the cost structure and quality of service.

Online security: The robo-advisor platform is accessible online, where all personal or financial data are stored in a single account. Hence, it is important to consider the security level of the service provider.

As the robo-advisor is accountable for your money management, it should have well-designed security protocols. There should be proper data back-up support and predefined action plan in the event of failure of an online site or any mishap.

Useful tools: Apart from research-based analysis or advisory offered by the platform, it should also include useful money management tools, such as budgeting and tax management. These value-added services should be relevant and help in decision-making.

The writer is founder and CEO,

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