What Are The Challenges Of The Global Robo Advisory Market?

By Author: Andrew Thomas
Total Articles: 19
Comment this article

The term robo-advisory signifies a cluster of independent financial planning services especially curated for investment management. This technology has moderate to minimalistic requirement for human intervention. In basic terms, robo-advisors are a type of artificial intelligence (AI) software incorporated into computer systems. This software is programmed to provide financial advice which are driven by the mathematical calculations of algorithms. The use of algorithms enable the robo-advisors to perform problem-solving operations and their services are used to allocate, manage and optimize clients’ assets. The robo-advisory application areas include tax-loss harvesting, investment selection, retirement planning, etc.

Conflicting factors influence and determine the scope of the market

Identifying the scope and extent of the services provided by the robo-advisors is a major challenge observed in the global robo advisory market. Failure in analysing the provisions for financial advice and the regulations governing ...
... them is a glitch in the robo-advisory technology. The regulations stipulate that the recommendations are personalized advice personalized based on the clients’ requirements and cannot be considered as general profitable financial speculations. The investment companies offering robo-advisory services must clearly define these personalized recommendations as completely dependent upon the customers’ personal goals and choices.

Although robo-advisory services are moderately priced for the customers, investors have to bear high client acquisition and servicing costs. There are also certain maintenance and up gradation costs involved in the management of robo advisors. Other main challenges of the robo-advisory model are low revenue yield on client assets which is a major factor inhibiting the growth of the robo-advisory market. Rising demand for customized solutions for complex investment needs will result in the growing popularity of the hybrid model which combines the use of robo technology with human perception. Currently, hybrid robo-advisors hold the largest global robo advisory market share (89%), whereas pure robo-advisors account for the rest.

The standard profiling of clients for assessing their goals and risks by a human advisor involve elements of emotional or subjective judgment, resulting in a bias. The algorithms governing the robo-advisory platforms help in removing such bias in financial advice to a large extent, thereby allowing for consistent recommendations for clients. This promotes reliability and transparency between the robo-advisors and their respective clients, which in turn, help in popularising the robo advisory platforms.

The algorithms governing the robo-advisors help in removing the advisory bias to a large extent. However, each robo-advisory platform has a preference for specific investment products and hence may raise the concern of conflict of interest from the customers. These platforms, which are sometimes owned by investment management firms, tend to promote its own products. As the customer is paying a service fee for obtaining the robo-advisory services, the cost incurred by the customer goes up without any substantial benefits which acts as a disincentive for the customer who is availing the services.

Increased objectivity, consistency and transparency shall continue to drive market growth

Despite major hurdles, positive factors like the growth of funded retirement plans will are predicted to provide a boost to the market. According to market surveys 67% of high net worth individuals (HNWIs) want asset managers to implement AI-driven technologies for smarter fund management. Increasing demand for better management of pension fund assets is expected to increase the global robo advisory market.

Our related post:
Automated finances management and Global Robo-Advisory Market
How Robo-Advisory is Becoming Important in the Global Market
What Makes the Global Robo-Advisory Market so favourable?
How is the Global Robo Advisory Market Profitable?

Written by a content marketer who keeps updated on industries for market research purposes and studying them.