Is Robo-Advisory already meeting expectations in digital banking?

Robo-advisors for the everyday investor began popping up around 2008, the year after the iPhone made its public debut. Just over a decade later, robo-advisors were managing about $785 billion, according to Backend Benchmarking, which specializes in research on digital advisors. Dozens of firms have built their own models to capitalize on popularity and an ascendant digital culture. Explore in this article how robo-advisors automate investing by using an algorithm to generate portfolios and understand the risks and benefits.

The entry of robo-advisors has broken down some of the traditional barriers between the financial services world and average consumers. Because of these online platforms, sound financial planning is now accessible to everyone, not just high-net-worth individuals.

Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. A typical robo-advisor asks questions about your financial situation and future goals through an online survey; it then uses the data to offer advice and automatically invest for you.

The industry has experienced explosive growth; client assets managed by robo-advisors reached nearly $1 trillion in 2020, with the expectation of reaching $2.9 trillion worldwide by 2025. Today, most robo-advisors use passive indexing strategies optimized using some variant of modern portfolio theory (MPT). Some robo-advisors offer optimized portfolios for socially responsible investing (SRI), or tactical strategies that mimic hedge funds. Additionally, they can handle much more sophisticated tasks, such as tax-loss harvesting, investment selection, and retirement planning.

Portfolio Rebalancing and comprehensive advisors

The majority of robo-advisors utilize modern portfolio theory (or some variant) to build passive, indexed portfolios for their users. Once established, robo-advisors continue to monitor those portfolios to ensure that the optimal asset class weightings are maintained even after markets move. Robo-advisors achieve this by using rebalancing bands.

Comprehensive advisors go beyond the usual risk profile quiz to create a more in-depth understanding of the investor profile, predicting behaviour by using artificial intelligence (AI) and data. In this category, the data tells robo about your actual net worth, current liabilities, spending patterns and behaviour in various situations and scenarios while the AI is constantly learning about you and the most appropriate investment for your profile.

Benefits of Using Robo-Advisors

The main advantage of robo-advisors is that they are low-cost alternatives to traditional advisors. By eliminating human labor, online platforms can offer the same services at a fraction of the cost. Robo-advisors are also more accessible as you can reach them 24/7


One of the biggest drawbacks of robo-advisors is their uneven standard. While some use cutting-edge AI and machine learning to design portfolios, the majority of robos in the market today still use simplistic methods.

Robo-advisors’ lack of human intervention can also be a hindrance. While robo-advisors find ready takers among millennials and GenX, it is less accepted among high-net-worth individuals with a large portfolio or those looking to invest a significant portion of their savings wallet. Such investors are more likely to look for validation through human advice, especially when the markets become volatile.

About ECEBiS

At ECEBiS you are going to understand what will change the trajectory of the financial industry. You will develop a transversal view on the forces that are shaping the future financial industry.

From payments and lending to investment and money management, tech providers are actively shaping the future of the financial landscape - even pushing the boundaries of currency itself. You might evaluate the impact of robo-advising on health management and examine portfolio recommendations from a diversified set of RAs and attempt to identify the factors behind proposed splits between asset classes.

ECEBiS is a platform in academic research on new business models and innovative products. We investigate in fast moving sectors that are reshaping the financial world of tomorrow and pioneering new ways of doing business. We want to attract outstanding ECEBiS students in finance with experiences and exposures, who intend to

  • develop knowledge on challenges that shape the future of financial industry

  • develop partnership with financial institutions engaged in fintech and responsible investment

  • raise awareness on the importance of fintech and sustainability in finance

  • identify the best practices in the financial industry to spread positive changes

  • promote a long-term view of value creation