Global Perspective

The use of sophisticated algorithms in wealth management is leading to improved efficiency and transparency in the financial services sector, benefitting both providers and clients. In particular, so-called robo-advisers are disrupting the industry and helping to boost financial inclusion. Primarily concentrated in developed markets such as the US and the UK, the technology is starting to make inroads in other parts of the world as traditional financial institutions and tech start-ups seek to tap the segment’s potential.

The robo-advisory model allows customers to manage their wealth or retirement plan online by completing a simple questionnaire, which is automatically analysed and matched with an appropriate portfolio that has been autonomously generated by computers programmed to gather, grade and assess the performance of a range of investment vehicles. These robots are capable of machine learning that mirrors human thought processes, and this is then applied to vast data sets. Given that there is a human programmer behind every robot, some critics of the model argue that digital interfaces mask the involvement of human labour in the processing of personal data, raising the issue of privacy. However, cognitive technology is guiding the newer generations of robots to adapt their behaviour according to each new data input, effectively allowing them to innovate without any human interference.

Automated financial services can undercut the fees charged by conventional fund management firms, making robo-advisers an attractive alternative for cost-conscious customers. Furthermore, while a client using a trusted and experienced human fund manager will benefit from the wisdom of one professional, a customer of a robo-adviser will benefit from the combined knowledge of multiple professionals. For providers, investing in robot technology will help them save on expenses that would otherwise be spent on human capital, such as salaries, commissions and office space rentals. Furthermore, the digital nature of the model allows companies to extend their services to a broader range of clients.

Performance & Requirements

A 2019 report published by US media outlet Barron’s, in partnership with Backend Benchmarking, estimated that robo firms had at least $440bn of assets under management globally. This was in large part due to a marked uptick in the performance of five major robo-advisery firms from the US; Betterment, Personal Capital, Schwab, Vanguard and Wealthfront attracted a combined $40bn in the first half of 2019, up from $25bn throughout 2018. US company Fidelity Go topped the report’s performance table, with a two-year annualised return of 7.26%, an equity-only rate of 9.20% and a fixed-income-only rate of 4.02%.

One of the main appeals of robo-advisery services is the low or zero account minimum requirements, in contrast to human advisers, who typically require a minimum of $50,000 in assets. According to a 2017 report by Business Insider, US firms such as Betterment, Blooom and WiseBanyan; UK companies MoneyFarm, Wealthify and Wealth Wizards; and Canada’s Wealthsimple all have a zero minimum investment limit. Of the 13 major start-up robo-advisers in North America and Europe featured in the report, five offered services to business or institutional clients in addition to retail clients, while Wealth Wizards was the only company purely focused on business-to-business customers.

Read the full Global Perspective in The Report: Trinidad & Tobago 2020