Robo-advisory Innovations

Robo-advisory and financial advisory are taking leap into innovations in recent years and this article talks about lot of interesting insights around fintech space.

Globally, wealthtech investors continued to focus significantly on robo-advisory offerings and platforms aimed at catering to the needs and interests of consumers at the lower end of the wealth market.

-Pulse of Fintech, H2 2023-KPMG

Robo Model-Introduction

Since cost of advise is always increasing, modest investable assets and viable services to advise in low cost is a main advantage of Robo Models.

Robo like offerings are at it's growth landscape since large brokerages and asset managers are building robo or robo like offerings to increase their digital footprint across Robo-Advisory space.

Target Regional Popularity

Global investors have increasingly targeted the Middle East as a potential area for wealthtech growth, particularly in locations like Abu Dhabi, which have a strong wealth base and a government commitment to fostering fintech innovation.

-Pulse of Fintech, H2 2023-KPMG

How Robo-Advisory Getting Built?

Following are some of the key tech debts get converted to Robo-Advisory (RA) Models across the wealth management offerings:

• Collect Individual Client?Data?–?RA Platforms need to offer a high degree of customization from the standpoint of an individual investor. This means an ability to provide a preferably mobile and web interface to capture detailed customer financial background, existing investments as well as any historical data regarding customer segments etc.
• Client Segmentation?–?Clients are to be segmented ?across granular segments as opposed to the traditional asset based methodology (e.g mass affluent, high net worth, ultra high net worth etc).
• Algorithm Based Investment Allocation?– Once the client data is collected, ?normalized & segmented – ?a variety of algorithms are applied to the data to classify the client’s overall risk profile and an investment portfolio is allocated based on those requirements. Appropriate securities are purchased as we will discuss in the below sections.
• Portfolio?Rebalancing??–?The client’s portfolio is rebalanced appropriately depending on life event changes and market movements.
• Tax Loss Harvesting?– Tax-loss harvesting is the mechanism of selling securities that have a loss associated with them. By doing so or by taking ?a loss, the idea is that that client can offset taxes on both gains and income. The sold securities are replaced by similar securities by the RA platform thus maintaining the optimal investment mix.
• A Single View of a Client’s Financial History-?From the WM firm’s?standpoint, it would be very useful to have a single view capability for a RA client that shows all of their accounts, interactions & preferences in one view.

Robo-Advisor Architecture

Design

Decision Making Algorithm

In a simple workflow, a new client gets a customised finnancial portfolio as an outcome after the interactions with Robo-advisory:

Summary

Automated investing methods through Robo-Advisory taking a leap in recent years and looking forward to see cutting edge technologies deployed into this domain with the arm of AI and LLM in coming days.

#LinkedInNewsUK ?#FinanceLeadership

Sources:

https://www.dhirubhai.net/pulse/robo-advisor-teardown-how-betterment-wealthfront-stack-lindsay-davis/

https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2024/02/pulse-of-fintech-h2-2023.pdf

https://www.researchgate.net/publication/341455443_Data_Analysis_of_Personalized_Investment_Decision_Making_Using_Robo-Advisers#pf6

https://www.vamsitalkstech.com/architecture/design-and-architecture-of-a-robo-advisor-platform-33/

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