Financial freedom is one of our ultimate goals in life’s adventure. We can achieve it through successful investing. Robo-Advisors can help us plan, invest, and reach our financial goals due to scientific advances in recent years. It makes the investing process more manageable, more convenient, and more accessible.
According to the US securities and futures commission, a Robo-Advisor is an automatic digitalized investment advisory program asking for our financial details, personal goals, time horizons, and levels of accepting risks. The Robo-Advisors then design and invest based on what we supply to them.
What are Robo-Advisors?
Robo investing has become popular worldwide since its first launch in 2008. Robo-Advisor is an online digital program using artificial intelligence and algorithms to do the financial work for us.
Robo-Advisor services are available in two places:
- Online service: You will find the online service offered by financial services firms on their websites.
- Brick-and-Mortar shops: If you go into their branches, you purchase and use the Robo-Advising services at your request.
1. Uses Modern Portfolio Theory (MPT)
Robo-Advisors is a program based on a set of investing theories by notable Nobel Prize winners. It uses modern portfolio theory (MPT) to optimize client’s returns on their risks, time, and personal objectives.
2. Has automated digital system
You will find the program is free from human prejudice because it is an automated digital system created using complex data like ages, goals, risk levels, and time horizons for complicated data analysis.
Robo-Advisors are performing human advisors’ jobs. Traditional work like client information collection, analysis, investment recommendations, and portfolio rebalancing are in place for clients.
3. Provides various products
Robo-Advisors provide various products to clients. Most of them are customized investment schemes like ETFs, Index Funds, and Real Estate Investment Trusts(REIT). The products cover a wide range of investment types. They also include some sophisticated schemes if clients request some complicated products like stocks and commodities.
4. Does an automatic investing job
The main feature is a Robo-Advisor does an automatic investing job referring to a client’s preferences without human discretions and interferences.
Financial institutions will base on different preferences and factors in analyzing and recommending their Robo-Advisor services and products. Clients approaching various financial institutions may get different results from the same information.
In the following, you will find out how to solve the problem.
How do Robo-Advisors work?
Robo-Advisors use automated systems of algorithms to process clients’ requests. They perform the functions: collecting data; analysis; making investing recommendations; monitor portfolios; rebalancing.
1. Collecting data
The program asks you a set of questions. They may include:
- Financial goals: What are your investing purposes for retirement, business planning, education, travel, or down-payment for-a-home purposes?
- Time horizons: How long will you take down investment, five, ten, or twenty years?
- Risk tolerance: Can you put up with the ups and downs of your assets during the investment period? How much loss can you tolerate: 5%, 10%, or 20%?
The information requested is the same as what a human financial advisor asks you if you seek financial advice.
Using artificial intelligence and the modern portfolio theory(MPT) approach, Robo-Advisors analyze clients’ data provided and process and compare solutions available.
3. Investing recommendations
A Robo-Advisor presents investing recommendations and solutions based on your details and preferences. Several scenarios of choices are also available to you.
4. Monitor Portfolios
Suppose you agree with the investing recommendations and fund your account with the investing company. Robo-Advisors will invest and monitor your assets regularly.
5. Portfolio Rebalancing
Robo-Advisors keep a watch on the proportions of your portfolio assets. They sell and buy assets to keep the balances of asset classes when market conditions change. Besides a lump sum investment, Robo-Advisors also use regular contributions to balance portfolios.
6. Passively-managed investing style
Once you agree to the investment plan, a Robo-Advisor will set up a portfolio tailored to your preferences, risk levels, and time horizon. It will monitor and adjust your asset mix if necessary.
The whole investing process is similar to an ETF’s or Index fund’s because Robo-Advisor carries out the instructions as formulated by clients.
In addition, a Robo-Advisor uses index funds, ETFs, and REITs as components of your portfolio. If you prefer a more aggressive style for returns, an active management style may be necessary.
A human investment manager will work together with a Robo-Advisor in carrying out your plan. Additional costs may incur.
Why do People choose it?
Robo Investing provides convenient and easy-to-navigate services to clients just as you would draw out your money from your account from an automatic teller machine(ATM) rather than queuing up for half an hour inside a bank. People choose it for the following reasons:
- Clients are busy:
A Robo-Advisor service may be a good option if you have little time investing or financial planning. The automated digital platform provides one-stop services from consulting to portfolio balancing. Robo Investing is a fit for people who like hassle-free and hands-off investing styles.
- Simple planning:
If you have fewer goals that are likely to conflict with your other goals in priority, Robo-Advisors may give you straightforward and quick-to-implement solutions. The benefit is you save time and effort in your planning.
- Beginner and young investors:
Robo-Advisors suit new investors not familiar with investing and sophisticated planning. Young investors having a learning curve in investing can start with standardized and straightforward planning tools, such as Robo Investing, to reduce risks.
- Small sum planning:
The advantage of Robo Investing is you can use the service for a smaller sum than the traditional service. Traditional human financial services are available to high net worth clients. Now financial institutions are offering the Robo-Advisor service for a smaller sum of money to retail investors. More and more people can get professional services.
- More than that, brokerages fees for Robo-Investing are lower than the fees for traditional human services. That is why Robo-Advisors have become popular among others.
- Diversification: Most of the assets Robo-Advisors invest in are exchange-traded funds and index funds. The funds invest in companies’ stocks and bonds from indexes covering most of the markets. Thus, your portfolio is well diversified from the risks incurred by individual companies.
Pros and Cons of Robo Investing
Low cost of investing
Robo Investing provides an affordable way for retail investors with access to tailored-made financial services for high net worth investors. Retail investors may reduce the risks and the chance of loss if they get advice from professionals. In other words, the possibility of making a return may increase.
Clients benefit from the regular monitor and rebalance by all-around computer, so the portfolio asset mix and performance align with clients’ goals.
Robo Investing is a passive-managed investment model. The investments are, for the most part, index funds and exchange-traded funds. It is a hands-off approach for investing. Clients may focus on other priorities and let the Robo-Advisors do the rest.
Fit for most of the investors
Though the investing style may not fit everyone, it can serve as a complement to an investor’s investing style. For example, active investors can use a Robo-Investing to reduce portfolio risk, particularly during market turmoils.
No human bias
Robo-Advisors use the investing model developed by Nobel prize winners in investing. It is a scientific model with no human bias involved. Investors can keep an eye on their portfolio performance more objectively.
No human contact
An advantage can be a disadvantage sometimes. A cold machine may not know a client’s entire financial situation. A human financial advisor may understand more through interactions with clients about their emotions and what they want personally from investing. It makes a human advisor better tailored for a client’s needs.
A computer system may not fully understand why parents try hard to maximize their assets for disabled children and want to preserve the hard-earned money from any loss. So the computer may not provide the best solutions to the parent’s financial circumstances.
- Simple investing technique
Robo-Advisor may not solve clients’ sophisticated financial goals by using one set of investing formulas. Suppose a client would like to do active investing like stock or futures picking within his portfolio. The Robo-Advisor may not cater to a client’s sophisticated demands.
- Outdated technology
Technology is forever evolving. Older versions are quick to be obsolete after new ones are in place. It may happen fast. What if your Robo-Advisor cannot catch up with the technology changes in response to market conditions?
Lack of close contacts
A Robo-Advisor cannot act in a proper and all-round response to changes in aggressive clients’ financial conditions in place of a human financial advisor. Regular and humanized interactions are necessary ingredients to the process of successful financial consulting.
Robo Investing in Singapore
Robo Investing has gained popularity in recent years in Singapore. The definition of the best Robo advisors depends on individual rating criteria. Some target new investors while others focus on advanced investors.
The following table provides comparisons about their minimums and fees for your information:
|Financial Institutions/Services offered||Minimum Investment Amount in Singapore Dollars(unless specified otherwise)||Annual Management Fee|
|Philip SMART Portfolio||$5,000||0.50%|
– Lump-Sum: $100
– Regular: $50
– Lump Sum: $1,000
– Regular: $100
|0.5%-0.6% for all portfolios;
Free for Cash Management portfolio
|UTrade Robo (UAB Kay Hian)||$5,000||0.50%-0.88%|
|FSM MAPS||Lum Sum: $1,000;
You, as an investor, will benefit from the so many services offered in the crowded market. But you may also be confused by the variety of products by the providers.
Apart from their cost and fee structures, you can see more information below as to which type of investor you are when you intend to buy the services:
Financial institutions vary in their pricing, the minimum amount required. However, some have low or even no amount of minimum needed for investors.
Here we find several Robo-Advisors are suitable for beginner investors because of low minimum deposits, annual management fees, and other related costs.
- SquirrelSave, Stashaway, Syfe, and UOBAM Invest have low-to-no minimum deposit requirements and reasonable annual charges. They are fit for beginners to have a try.
- Kristal.AI, Autowealth, and EndowUs offer sophisticated investing strategies and are more suitable for advanced investors.
- OCBC RoboInvest and DBS DigiPortfolio are offered by traditional banks OCBC and DBS. They are acceptable to conventional investors.
Are Robo-Advisors registered in Singapore?
Digital Advisors, also called Robo-Advisors, are licensed by the Monetary Authority of Singapore(MAS) and regulated under the Financial Advisors Act(FAA).
Robo-Advisors must show the following under the Act:
- A Robo-Advisor must have reasonable grounds for recommending services to clients.
- Using algorithms to invest, a Digital Advisor must have the methodologies in place to test and monitor the performance of artificial intelligence.
- Financial institutions must have responsible staff for developing, monitoring, controlling, and reviewing to ensure performance accuracy.
- Financial institutions should carry out regular post-authorization audits of the procedures and ensure the Robo-Advisors comply with operating requirements.
- MAS allows Robo-Advisor outsourcing, but the people developing a Robo-Advisor are also responsible for the accuracy and performance of the algorithm system.
- Companies outsourcing the development of Robo-Advisors should also be responsible for the risks of outsourced activities and comply with the MAS’s Outsourcing and Technology Risk Management guidelines.
The guidelines help companies with risk management about information technology to ensure cyber safety.
- The MAS conducts regular reviews and onsite inspections to ensure monitor and control systems work properly.
- Financial institutions should correct any errors and improper practices and contain the damages caused as soon as possible.
Frequently Asked Questions(FAQs)
1. When should I use a Robo-Advisor?
A Robo-Advisor cannot do all-around things for clients. You should review the following before using a robot for investing.
- Suppose you plan to retire in one to five years. In that case, you may need a human financial advisor to review your financial situations and integrate your non-investing and emotional factors into your plans before and after retirement.Rather than focusing on investing, a human financial advisor handles and reviews a client’s emotional and other economic factors. The advisor integrates all elements and produces a comprehensive financial plan for a client in the end. A Robo-Advisor cannot sort out all things for a client’s every life stage.
- If you face market selloffs and unstable investment markets, you may need professional advice in navigating the stress caused. A human financial advisor knows how to handle situations more than a robot. If you need more consulting during an unsteady market, you may have to find a human advisor helpful.
- Technology for investing sometimes may not suit traditional investors. Traditional investors may like to trust their instincts and other investing techniques when facing opportunities.
If you are considering using a Robo-Advisor in investing, you may need to set some trade-offs.
- Personal stress may have an impact on your investing style. Robo-Advisor is a formula investing platform and does not consider a human factor in investing.
If you face stress caused by the investment market or other factors, your investment plan may change because of emotional and abrupt decisions. A human financial advisor may help smooth a client’s stress and keep an investing strategy on track to its goals while advising an emotional client is not a Robo-Advisor’s job.
2. What to know before using a Robo-Advisor?
Automated investing is a part of financial planning. If you decide to make it in your planning process, you should know things before pushing the button.
Compare the packages from financial institutions: While different service providers offer the same service, they differ in cost and structures(previously stated).
More information is available to you regarding several brand names before choosing the right one.
|Autowealth||Standard charges regardless of investment amounts||A minimum amount of S$3,000 and a platform fee of USD18|
||A required minimum deposit of S$1,000|
||Not transparent fee structures|
|MoneyOwl||Suitable for new investors owing to low deposit and costs||Limited fund choices|
|OCBC Roboinvest||More fund choices regarding asset class, thematic investing like industry sectors, ESG, Ethic investing||Standardized charges regardless of the investment amount|
|SquirrelSave||Low minimum investment amount of S$1||Not transparent fee structures|
|StashAway||Popular name; No minimum investment amount; Life insurance coverage offers||High fees compared to other products; minimum investment amount for income portfolio – S$10,000|
|Syfe||Numerous fund choices, including REIT and Exchange-traded funds||Paid extra professional advice available for clients of S$20,000|
|UOB Utrade Robo||The lowest fees of bank Robo-Advisors||More expensive than non-bank offers|
Besides the information above, you should know more about the backgrounds, operating history, and customer’s comments on the services offered by the financial institutions. The probability you will regret the service provider’s choice goes consistent throughout and rigorous examinations.
3. Should I use a Robo-Advisor instead of a human one?
Convenience and Efficiency
A Robo-Advisor is a popularized platform providing professional investing services once reserved to high net worth investors. It streamlines some processes and makes them more efficient and convenient for clients.
You, as an investor, have more investment options than before. Besides, you can monitor your portfolio performance or change asset mixes easier by finger-touching your cell phone, tablets, and computer screen.
Using artificial intelligence and algorithms, Robo-Advisors make investment advice more accessible to more investors. However, a coin has opposite sides. Convenience brings unexpected outcomes.
Most Robo-Advisors offer exchange-traded funds and index funds in clients’ portfolios. They are mainly long-term and passively managed investment funds.
4. Is Robo a solution for all?
The commitment to investing in schedule is a necessary part of success. New and young investors are more subject to modifying their portfolios due to market changes.
Robo-Advisors cannot take the place of a human financial advisor in helping new and young investors commit themselves psychologically.
Moreover, Robo-Investing cannot cater to sophisticated investors’ needs. Standardized investing services are the selling point of buying Robo-Advisor services. Investors like quick, affordable, and easy ways to manage their wealth. But the lack of portfolio personalization results.
5. Can you beat the market using a Robo-Advisor?
If outperforming the market is one of your goals, you will be disappointed as they are, for the most part, index funds and ETFs.
You can have both of “the worlds.”
The best ways are going both ways at the same time! You benefit most if you have a human advisor picking stocks and bonds and consulting on other financial matters like taxes, estate, retirement, and insurance.
On the other hand, a human advisor will work with a Robo-Advisor to allocate and monitor parts of your assets. Therefore, two sources work hand in hand to realize your financial goals.
In a word, a financial advisor can play a part in managing your financial affairs in broad scope, including considering emotional factors, aggressive investment management, and monitoring the Robo-Investing on implementing the relevant investment strategy, asset allocations, and rebalancing.
How to Evaluate Robo-Advisor Services?
You are interested in Robo-Advisor services but perplexed by a mass of digital investment service providers. Here are some guidelines you may find helpful in selecting a Robot-Advisor that suits you:
1. Identify Robo-Advisor Services
Among the financial institutions providing the services, they differ in product offerings.
Endowus and Kristal.AI promote product diversity, e.g., clients can build up investment portfolios of their choice. Besides, actively managed funds are also available for more sophisticated investors pursuing market outgrowth.
Other Robo-advisors focus on low-cost and easy-to-operate strategies to lure new and inexperienced customers.
Traditional banks, like OCBC and DBS, emphasize their brand names and edges in selling their services. The services are more popular among traditional customers alike.
You will find more information on the “financial product advantages and disadvantages” table.
Fees are the paramount consideration in choosing Robo-Advisor’s services.
Young or new investors are likely to choose low-cost and straightforward investment products, while advanced investors are concerned with the cost impact on investment returns.
Traditional investors may hope to get discounts on products regarding their relationship with big banks. You can see more from the Robo-Advisor fee table “Robo Investing in Singapore.”
3. Interact with a human advisor
If you think a machine cannot perform all your investing needs, then a human financial advisor is what you need to finish your jobs along the way.
Whether you are a beginner or an experienced investor, you need a human financial advisor to solve problems a Robo-Advisor cannot do, such as emotions and investment strategy, concerning investing and other financial matters.
Not a necessary rival, a human advisor may partner with a Robo-Advisor to achieve financial goals.
Suppose you think having a human advisor is necessary for your investment plan when choosing a Robo Investing service. In that case, you should inquire whether a human financial advising service is available and the costs related while shopping for a Robo-Advisor.
How much should I invest in a Robo-Advisor?
You may realize a Robo-Advisor offers many benefits so that you can do your investing easily. Two popular investing plans are available to investors:
1. Lump-sum investment
You can invest with your money ready only if you meet the minimum requirement. As stated earlier, most Robo-Advisors have low or no minimum. However, the rests you should keep in mind are investment options and timing the markets. A Robo-Advisor or human advisor helps!
2. Regular investment
If regular investing is your choice, you can use the regular savings plans to achieve your investing goals. Most Robo-Advisors have low minimum investment amounts. Moreover, you can use the cost-of-average dollar to increase your investment returns.
You can find out more about the “Robo Investing in Singapore” section above for the entry requirements.
What if a Robo-Advisor goes out of Business?
Being a regional financial hub and rule-of-law country, Singapore has comprehensive laws and regulations to protect investors.
Like other professional industries, a financial institution is required by laws to keep their clients’ funds safe, and they must set up an account for clients only. Clients’ money will stay there separate from a financial institution’s capital and will not be allowed to be commingled for any purposes.
Besides, the client’s investment assets are kept in a custodian account. That means a financial institution cannot dispose of assets other than under a client’s instructions. Investors can rest assured of their asset safety.
But you should note you cannot transfer your assets from one custodian account to another. You must sell them before you withdraw, even if the financial institution is in trouble mode.
Some of the Robo-Advisors in Singapore have set up statutory capital beyond the authority’s legal requirements to assure investors’ confidence.
- Robo-Advisors is a popularized investment platform using artificial intelligence and algorithm to keep investing services available to retail investors.
- Robo-Advisors are low-cost and efficient regarding data collection, analysis, fund investing, monitoring, and portfolio rebalancing. They are popular among newcomers and investors who prefer hands-off and hassle-free styles.
- Robo Investing is not for sophisticated investors preferring diversified products and aggressive market strategies.
- Investors should compare product features of the Robo-Advisors concerning the fees and services before one suits.
- A human financial advisor may be necessary to complement a Robo-Advisor’s jobs concerning investing and other financial matters.
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