In the last couple of years, Robo investment platforms have taken an important position in serving the middle and lower markets for financial planning. They are here to stay and should be encouraged. The question is does the Robo model for investments in its current format completely work? Like many new innovations, the problems are somewhat hidden when the markets are hidden. Where the Robo platform is completely stand-alone and totally independent of direct advisor input then the risks increase.
Then, also let’s consider what do investors want? Gallup research shows only 9% of investors want a completely automated service, and this is mainly the younger investor. Therefore, 91% of investors want some human input in their financial planning. Refer to the following research:
The issue I see emerging for Robo platforms is that when there is a sharp and/or sustained correction downwards then there could be a mass exodus with a bloodbath of losses. After all, behavioral finance research shows us, people will, in varying degrees, make emotional decisions at the wrong time and follow the herd out of the market. Yes, the Robo platform may have many clients, but they will not be able to communicate with them when negative events happen. Similarly, there is no incentive for the Robo platform to communicate with investors as the market keeps going up and many get out of their comfort zone. In fact, the Robo is incentivized to keep having these people sign-up.
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