Opinions

The Rise Of Robo-Advisors In S'pore And Why It Cannot Fully Replace Human Financial Planners

As of 2020, robo advisors in Singapore are estimated to command about S$1.5 billion in assets under management, spread out over about 105,000 users.

This is only a fraction of Singapore’s S$3.4 trillion asset management industry, but its growth is particularly promising, especially among the younger generation.

However, it has been said that robot advisors lack the human element and are unable to provide truly tailored and holistic financial planning services for their clients.

With that, are robo advisors deemed an asset to the investment industry? Do they have a place in the serious investing world, or is it something that can be used simply as a supplement?

In this article, we discuss the outlook on robo advisors in the industry and whether they can truly replace financial planners.

What Can Robo Advisors Do?

Online Trading
Image Credit: Unsplash

Robo advisors are digital platforms that provide automated, algorithm-driven financial planning services.

What it does is collect information from clients about their financial situations and future goals through an online survey, and then uses the said data to offer advice and automatically invest client assets.

Depending on the type of portfolio you are on, robo advisors are able to react immediately to market changes.

This is a more efficient method as compared to a financial advisor, whom you would need to physically meet to discuss and adjust your portfolio based on your objectives which may change from time to time.

The increasing growth of robo advice has raised the question if human advisors face possible extinction.

Moreover, with modern technology, face-to-face transactions are less recommended due to the Covid-19 pandemic, which helps give rise to robo advisors.

It has also been said that robo advisors are less expensive than traditional advisors.

Typically, financial advisors charge anywhere between 2 to 3 per cent (or more) of the value of your portfolio, while robo advisors usually charge less than 1 per cent.

However, their low, up-front prices come with a loss in quality.

Robo advisors lack an irreplaceable human element, which prevents them from providing the essential qualities and services characteristic of traditional financial advisors.

Unlike robo advisors, a financial advisor is able to show empathy which is something you might need when dealing with money matters.

The Rise Of Robo Advisors in S’pore

In the last decade of underperforming ETFs and falling commodity prices, robo advisory quickly gained popularity.

Today, there are more than 10 robo advisor platforms in Singapore.

Robo advisors in Singapore
Image from DollarsAndSense.sg

Large investment funds are implementing robo advisory technology as the efficiency of automated portfolio management promise high return rates compared to old-fashioned alternatives.

As a result, firms that offer the same technology are becoming popular.

For example, MAS-licensed digital wealth manager Syfe can create personalised, professionally managed portfolios with their mobile and web applications within minutes.

StashAway mobile app
Image Credit: Eight Roads

Syfe’s wealth advisors promise to provide an intuitive investing experience that is low cost and hassle-free.

Another popular player in the industry is StashAway, which is also MAS-licensed.

Before Syfe came into the market, the robo advisory market in Singapore was dominated by three players — AutoWealth, Stashaway and the now-defunct Smartly, sometimes abbreviated “ASS”.

Smartly cited intense competition in the digital investment advisory space is intense and maintaining a high service standard on the platform as challenges to sustaining the business.

They May Have A Place For Beginner Investing

Robo advisors have their place for beginner investors who are just starting out, or the millennials who are more tech-savvy.

Due to its low cost, robo advisory appeals to undergraduates or fresh graduates who don’t have a lot of capital but wish to start investing earlier.

Online Trading
Image Credit: Unsplash

Robo advisors help fill a gap in the market by bringing low-cost, diversified investing with automatic rebalancing and tax loss harvesting to investors who have S$1,000 to S$10,000 to manage.

However, as the investment sum gets larger and portfolios become more complex, human financial planners need to step in.

As mentioned, robo advisor technology still needs hands-on human intervention at some point.

If you are a passive investor, a robo advisor might be all you need. Meetups with financial advisors to perform checks on your financial health and investments, whether physical or virtual, can be too time-consuming if you are not that committed.

Therefore, a robo advisor that automatically rebalances or adjusts your portfolio will be suitable for you.

However, if you are a more active and serious investor, then a financial advisor might be a better choice as they should be able to answer your questions and give context.

Singaporeans must still seek professional advice when they choose to invest their money in complex financial products such as life and non-life insurance, mortgage and investments.

Featured Image Credit: Unsplash

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