Robo-advice refers to any financial advice that is provided through automated means. The first applications in this field were related to investment portfolio decision-making. However, robo-advice has expanded to cover a wide range of personal finance decisions individuals face daily. These include determining how much to spend or save, minimizing credit card debt, and reducing tax payments. (D’Acunto 2022.) While automation streamlines processes, it raises questions about the relevance and demand for human expertise in the financial advisory services.
Advantages related to robo-advisors
In his bachelor’s thesis, Ignatev (2023) studied how robo-advisors are changing the traditional financial sector and why banks are implementing this technology in their daily operations. The main motives for using robo-advisors can be summarized into cost-effectiveness and broad accessibility.
Robo-advisory systems rely on low-management products such as ETFs. This means that portfolio managers don’t need to make active decisions, making the cost structure more straightforward and manageable. In general, robo-advisory technology enables faster processing times for banks. The use of robo-advisors reduces management, personnel, and asset costs simultaneously, leading to decreased service prices. As a result, these services are more accessible to a wider range of customers. (Ignatev 2023.)
Impact on traditional specialists
While the benefits related to robo-advisors are inevitable, the need for human interaction still exists. As Noonan (2023) states, robo-advisors have not gained full trust among investors yet. Studies have shown that especially individuals with higher wealth tend to value human advisors (Cocca 2016). Therefore, it is likely that especially financial advisors who handle large clients and portfolios will continue to be in demand.
Nevertheless, the nature of the work done in the financial services sector is changing. D’Acunto (2022) predicts that the financial industry will experience the emergence of new jobs specifically related to controlling and managing the operations of robo-advisors. The process of digitalization of certain types of jobs is inevitable, and it is transforming the industry into a more engineering-based field. New types of professionals are needed, such as regulators and computer scientists who can combine legal expertise with an understanding of complex algorithms.
The financial sector is rapidly evolving with AI technology, but it is unlikely that human financial advisors will become redundant anytime soon. The future of this industry is in combining AI-driven solutions with human expertise. This will create a balance between technology-driven precision and personalized advice.
Authors
Mikhail Ignatev is bachelor’s degree student in International Business at LAB University of Applied Sciences.
Sirpa Varajärvi works as a Senior Lecturer at LAB University of Applied Sciences.
References
Cocca, T. 2016. Potential and Limitations of Virtual Advice in Wealth Management. Cited 5 Dec 2023. Available at https://ideas.repec.org/a/ris/jofitr/1581.html
D’Acunto, F. 2022. Robo-advice: An effective tool to reduce inequalities? Cited 10 Dec 2023. Available at https://www.brookings.edu/articles/robo-advice-an-effective-tool-to-reduce-inequalities/
Ignatev, M. 2023. The evolution and implications of robo-advisors and their impact on traditional financial institutions. Thesis. LAB University of Applied Sciences, bachelor’s degree programme in International Business. Cited 18 Dec 2023. Available at https://urn.fi/URN:NBN:fi:amk-2023121838098
Noonan, D. 2023. Artificial Intelligence Won’t Replace Financial Advisors. Morningstar. Cited 18 Dec 2023. Available at https://www.morningstar.com/financial-advice/artificial-intelligence-wont-replace-financial-advisors
Tumisu. 2019. Robo adviser, investments, fintech. Pixabay. Cited 18 Dec 2023. Availabe at https://pixabay.com/fi/illustrations/robo-neuvonantaja-investointeja-4638382/
