Will Robo-Advisory Firms Be Able To Dent The Traditional Advisory Segment?
Business Today|October 17, 2021
Robo-advisory firms are riding on their artificial intelligence-driven systems to dish out quick financial advice. Bereft of any human bias or emotion, will they be able to dent the traditional advisory segment?
Ashish Rukhaiyar

“GREED, FOR LACK of a better word, is good. Greed is right, greed works,” goes the famous line said by Michael Douglas in the Hollywood movie Wall Street. The dialogue has assumed cult status ever since it was said in the 1987 movie, and has been widely and frequently reproduced in various forums on investing in the stock markets. Greed—and fear—are probably the two most common human emotions that are talked about in the stock markets even as many believe that trading is best done without any ‘emotional guidance’ at play. Keeping out emotions or biases while picking up the best stock or sector was not possible till a few years ago, as the analysis was done by humans. But the idea to keep out emotions was always in existence. Finally, an industry emerged that showed human emotions the door while enhancing the speed of analysis and, more often than not, at a lower cost structure as well.

Robo-advisory has been in existence for a few years and while it is already a huge industry globally, it is picking up fast in India as well. Simply put, robo-advisory refers to the digital platforms that provide financial advisory services based on completely automated, artificial intelligence (AI)-driven software with almost zero human intervention. While the code is developed by humans, the parameters or filters that it uses to pick the right stock or even suggest replacing an existing stock in one’s portfolio with another is based completely on factors related to valuations, governance and performance, among other things.

In other words, human bias or emotion is not a factor that it considers. Typically, these bots or platforms ask a few questions when one registers. This is basically done to understand one’s risk profile and investment goals depending on which the AI recommends the right stocks, or in many cases, mutual fund schemes or even exchange-traded funds (ETFs). In a consultation paper issued way back in 2016, capital markets regulator Securities and Exchange Board of India (Sebi) defined robo-advisors as “wealth management companies providing an automated support for all financial advisory services without any human intervention... Be it trading, investment, portfolio rebalancing or tax saving, the roboadvisors can help investors without any human interference. It works with pre-defined algorithm and analytics, and calculates the best returns and plans for each individual as per his requirements and preferences.”

The growing clout of roboadvisory businesses in India can be gauged from the fact that a recent report by German market data intelligence firm Statista stated that the total as sets under management (AUM) of such entities in the country would touch $13 billion in the current year. More importantly, it stated that the assets are expected to grow at a CAGR of nearly 43 per cent between 2021 and 2025 with the AUM likely to touch nearly $54 billion by 2025. The number of Indians who use robo-advisory services is also expected to touch nearly 330 million by 2025. Just to put things in context, the AUM of robo-advisory firms in the US is currently pegged at $1 trillion, as per the report by Statista.

While the Indian projections may look a bit ambitious, there is ample room for growth as robo-advisory is still at a nascent stage in India and the asset size is just a fraction of what some of the developed countries have witnessed. “Many of the first-time investors are young, tech-savvy individuals who believe in DIY [do it yourself] rather than seeking advice for their personal financial management and that is where robo-advisors come in,” says Deepak Ahuja, a wealth manager and also an angel investor in the fintech space. The current generation wants to take out the middlemen from all their transactions, he adds.

While investors may want to remove the middlemen from the arena, robo-advisory appears to be removing analysts as well even as it continues to analyse every company on various parameters.

ANALYSIS SANS THE ANALYST

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