There are some critical core advantages that robo advice can generically
deliver. An enormous swathe of the population who have a need for their nest
eggs to be expertly risk managed for capital growth or to provide income,
effectively have very few affordable options based on the traditional advice
model.
Keenly and clearly priced robo advice can offer an intuitively structured
alternative that marries the ever expanding desire many of us have to be able
to manage even the more sophisticated areas of our life online. The usage of
digital solutions to obtain mortgages and loans for example is now very much
mainstream. It is a natural extension to include investments into this model to
provide price and quality comparison.
However robo advice is not without its own possible shortcomings which
need to be analysed when selecting a provider to ensure they are mitigated. The
most crucial consideration that investors must become entirely comfortable with
is to confirm that the actual portfolios available have the requisite real
world track record to allow as greater level of confidence as possible that
their future performance will fit the bill. It’s crucial to determine that the specific
portfolios that can be selected have demonstrated the ability to handle
turbulent market conditions in the short, medium and long term through
exemplary risk management. However, this task is not an easy one in context of
the fact that many robo advisers have a comparatively short performance history
because many were founded only recently.
Take care not to rely overly purely on impressive curriculm vitaes of the
asset managers involved or the quants who have built the investment models if
the actual available portfolios are still relatively unproven. Whilst strong
performance and pedigree generated elsewhere is a plus, there are numerous
examples of portfolio managers who have managed to produce impressive results
in a different context, who have not necessarily been able to translate this
success to their next investment mandate.
The greatest peace of mind on robo adviser selection is to be achieved by
identifying alternatives that have have a multi-year real world track record
which, if at all possible, incudes plotting a course successfully through the
events of 2008 within the numbers. Apply a healthy dollop of skepticism to
performance numbers that are a result of simulations applied to a historical
period in time – i.e. estimations on how a portfolio might have performed had
it been in operation.
If the robo advisor’s portfolios have been white labelled by an IFA firm,
it is essential to drill into the underlying robo firm to ascertain the
expertise and track record of the asset manager behind the scenes.