A small miscommunication with her broker cost Divya Gera (name changed) dear in the stock market. This was not the first time. She had similar human errors earlier as well and every time she had suffer a loss. “Better to trust humanoids than humans,” she thought, and moved on to a robo advisor.   

The automated advisor provides financial tips and guidelines framed through a process or a set of rule-based software or algorithm in technical terms. Financial advisors, investment managers, data scientists and programmers make them. Ideally, the software can automatically allocate, optimise and manage clients’ assets for the short to long term.

Different levels of robo advisory services are available across the world based on the extent of personalisation, discretion, involvement, and human interaction. According to Deloitte, robo advisory services offered in India include pre-defined rule-based investment proposals for adjustments and rebalancing portfolios. These algorithms, however, do not pick up learning data themselves. They cannot execute automatic asset churns as yet.

Divya is waiting for fully automated investment handling system so that she could comfortably leave her entire investment to a digital programme. But it is hard to predict when that would be a reality.

Robo advisory has evolved in India with an increased financial awareness among the masses. Assets under management (AuM) in the domestic robo advisory arena, Statista predicts, would touch $53.9 billion by 2025 at a 43.8 per cent compounded annual growth rate through 2020-2025.

A recent survey by ING Mobile Banking, however, found that Divya represents a small slice of the pie as most individuals were reluctant to leave their hard-earned money for a software to manage. Given the mindset of the investor community, it is unlikely for robo advisory to completely take over traditional financial advising services soon.

There is speculation about the role robo advisory will play shortly. It will be a factor of improvements in Artificial Intelligence. One set of experts predict that AI-based applications will improve relationship management for advisors which, at present, mainly involves trading decisions. AI may allow advisors to pull out specific client information and predict the performance of potential recommendations on a real-time basis.

Although a host of financial planning programs offer these capabilities, AI’s growth may expand these software’s analytical and predictive power. In addition, AI’s deep learning capabilities may allow advisors to depend on the software for daily and repetitive tasks, like sending out alerts, information and advice, which take a lot of their time. AI’s analytical capabilities may result allow advisors to take up more specialised and interpretive roles as well.

However, advisors will not want to just let their systems send out information and analysis directly to clients without review. Hence, it is likely to turn into a mix of software-backed services and human-based advice to clients.

This software could execute continual analysis of a client’s financial picture, suggesting options as the client’s situation evolves. For example, in case of a significant churn in managing a mutual fund used for one or more client portfolios, the AI-based software could alert the to determine if the fund has to be retained or exited.

A number of macro factors such as an increasing per-capita income, rising number of millennials with more disposable incomes, a major shift in investment behaviour due to economic uncertainties, affordable smartphones and internet penetration, have paved the way for the growth of robo advisory in India. The service is at the 3.0 phase in India now and is expected to move towards phase 4.0, similar to developed markets like the US and the UK using advanced technology.

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Robo Advisory

• Fund-Based Robo Advisory
• Equity-based Robo Advisory
• Comprehensive Wealth Advisory

AuM Projection $53.9 billion by 2025

Global Revenue $4.51 billion in 2019

Revenue Outlook $41.07 billion by 2027

Growth Rate CAGR of 31.8% from 2020 to 2027 [Source: Allied Market Research]

Robo-advisory firms in India

• Finpeg
• 5nance
• Fisdom
• FundsIndia
• MoneyFrog
• Scripbox
• Goalwise
• 5Paisa
• Arthayantra
• Angle Broking – ARQ