Comparison between Robo-Advisor and traditional Asset Manager

Robo-advisors is probably the next big thing in Fintech space and it’s craze is catching on among the pubic as well. They are shifting their view from having a more personalised service to a service based on scientific investing. There is a difference between what a robo-advisor does and how traditional asset managers go about managing their money. Let us have a look at these differences in detail on various parameters.

Investment Methodology
The first thing that any investor is looking for is the basis on which investment is made. Traditional asset managers usually have multiple factors which they take into consideration. They use some research reports, use intuition and guts and choose the fund which offers them the highest commission among them all. Many times, they even overlook the risk-taking ability of the investor.

Robo-advisors use scientific based programs on theory, analytics and past behaviour of stock/ fund to rank them. It also uses the risk profile assessment tool to map the best fund to customer’s portfolio according to his risk-taking ability. This removes any human intervention, provides independent decision making and ultimately better results for investors.

Fees
Traditional Asset Managers always prove costly, when compared to robo-advisors which only charge a fraction of fees when compared to traditional asset managers. This benefit passes on to investor’s portfolio and helps them generate a higher return. Over time, this saved fee become a big amount which investor has saved.

Entry Fees
Traditional Asset managers and banks require you to have a large sum of money so that you can start portfolio management service with them. It can be as high as € 100,000. Whereas, for robo-advisors it can be as low as € 5000 depending upon the type of module and asset class chosen.

Lock In period
Most of the traditional asset managers place a lock in period during which you can exit, even in case of emergency. However, most robo-advisors don’t have any lock in and you can take out your money any time you want. This gives investor the flexibility and freedom to avoid or reduce the amount in emergency funds, as required money can be taken out any time.

Returns
Asset Management is all about generating returns. It doesn’t matter whether you had invested millions or just a thousand dollars, if you are not making money out of then, the amount invested is worthless for the investor. Robo-advisors have outperformed traditional asset managers and ETF’s over long periods of time. This is because of scientific decisions made by the robo-advisor and lower fees help in overall better returns. If you look at the charts of any company, you will find that during the downturns or crash, robo-advisors have performed much better and have safeguarded your money.

However, the final decision lies with the investor. Some of the investors prefer traditional asset managers because of the personalisation offered. But, robo-advisors are fast catching up and are offering wide range of customisations among asset classes.