What is the different between robo advisors and regular platforms?

29 July 2021

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Question by Flora

What is the different between robo advisors and regular platforms?


Answered by James Greenly

Good question!

‘Robo’ advisers are essentially investment platforms that use little-to-no human intervention when suggesting an appropriate home for your money. The ‘robo adviser’ (spoiler alert: there is no actual robot behind the scenes, just some fairly basic algorithms) typically asks you a series of questions to measure your risk appetite (how would you feel if your portfolio dropped -10%?) and your investing timeframe (how long are you planning on investing for?), and it will then automatically steer you towards an investment portfolio with an appropriate risk level.

A ‘regular’ investment platform does not attempt to direct you towards a specific portfolio, and instead allows you to pick your own investments, or if you are working with a financial adviser, allows them to recommend something appropriate for your needs.

Robo advisers certainly have a role to play, but they are not suitable for all. They can be a bit one dimensional in that the ‘advice’ will always be to invest in one of their own portfolios. If you are confident about what you are hoping to achieve with your money, then they are typically a low-cost, hassle free solution. You also benefit from having your money invested in a well-diversified mix of investments, constructed by a professional investment team. They also take care of things such as ‘rebalancing’ your portfolio. Rebalancing is important as your portfolio would contain lots of different funds. Each year, some will do well and others not so well. Over time, the portfolio can become unbalanced.

If you would like to know more about the benefits and drawbacks of Robo Advisers, here is a useful article on the subject of ‘Robo advice vs Human advice’: https://www.capital.co.uk/life/financial-planner-vs-robo-adviser-apps

I hope this helps.

Answered by

James Greenly

Chartered Financial Planner

I am a Chartered Financial Planner at Capital Asset Management, a boutique financial planning and wealth management firm based in the City of London.