Artificial Intelligence has taken the world by storm and almost every industry is looking to leverage its capabilities, from self-driving cars to medical diagnostics. But, should you entrust robots to make key decisions?

Recently, the world lost one of its most proficient scientists, Professor Stephen Hawking who died at the age of 76 in the early hours of March 14. He fought a life-long battle with motor neurone disease or Lou Gehrig's disease. His legacy of discoveries, teachings, and books will live on beyond this time and space.

Among many of his quotes, which have been shared from the time of his passing, are his views on Artificial Intelligence (AI).

AI refers to the creation of intelligent machines that work and react like humans. These machines are programmed to "think" like a human and simulate human intelligence processes. AI can help a variety of industries, from finance to farming and marketing to medicine.

But, Professor Hawking had one fear and made no secret that AI could one day “spell the end of the human race.” This is despite the fact that AI gave him a better and more efficient voice than his body was able to produce.

However, this quote should not be misconstrued. Professor Hawking did not reject AI; at a Cambridge University talk he said, "I am an optimist and I believe that we can create AI for the good of the world. We simply need to be aware of the dangers, identify them, employ the best possible practice and management, and prepare for its consequences well in advance.”

He has often called for more research on the benefits and dangers of AI. He believed that even non-superhuman AI systems could help eradicate war, poverty, and disease.

The dawn of robo-advisors

The fast-paced advancement in technology is seeping into the financial services space as well.

While India may still be behind developed countries, financial transactions via smartphones and other mobile devices are on the rise and artificial intelligence can dramatically personalise and enhance your experience.

In the recent past, banks have introduced humanoids that use AI to assist with customer service, marketing, and process automation.  Till date there’s City Union Bank’s humanoid named Lakshmi and HDFC Bank’s IRA. Have you met these new age robo-bankers?

Apart from banking, the use of technology is being leveraged in the financial planning and investment advisory space as well.

The mode of investing is simply moving from strenuous paper work to just a few click or taps on your mobile screen and a transaction password.

Robo-advisors make investing easy

Presently, there are online platforms and mobile applications that use computer algorithms (also known as robo-advisors) that offer personal financial and investment advice on submitting your personal finance details. And there’s no need to fix an appointment, you just need to log in to your account, submit your personal information and voila!—your financial plan is generated in an instant.

Robo-advisors help you to plan for you financial goals, enabling you to save and invest in an automated manner.

With a 24x7-service window, robo-advisors are the future of financial planning and investments in a time-strapped world.

Globally, robo-investing is a buzzword these days.

There are four main reasons why robo-investing is gaining popularity: 

1. Unlike financial advisors who often have discriminating policies for smaller investors, robo-investing platforms treat all investors the same.

2. They offer a reasonable level of customisation in portfolio construction at an affordable cost.

3. Robo-advisors construct an asset allocation strategy through a portfolio of mutual funds taking into account one’s risk appetite and time horizon to stay invested.

4. Since the portfolio construction and review does not involve human intervention, there is no room for speculation.

In other words, robo-advisory platforms are created to iron out the shortcomings of the financial advisors and investment consultants. As you will acknowledge, many times financial advisors fail to prove the value of their services. They either charge you a fat fee and offer average advice, or charge no fee, but provide biased advice that earns them huge commissions. It is the investors’ loss, in either case.

The dangers of picking the wrong robo-advisory platform

There are two sides to every coin. As Prof. Hawking pointed out, AI can indeed change people’s lives for the better, but there can be some negative consequences as well.

Coming back to robo-advisory platforms, there are pros and cons of investing via a robo-advisor as well.

Some of the popular robo-investing platforms focusing on mutual fund investing have no background of mutual fund research. They are either relying on the third-party research or using the most basic filtration. 

What’s the result?

Investors are likely to get inferior quality advice. 

If you question their integrity, well, they might not be cheating you per se. But why are most of them still making you invest in regular plans of the mutual funds and offering free advice? 

Here’s a problem. When the business model of an advisor is commission based, he/she tends to offer you biased advice. If the same pattern is being followed in robo-advisory as well, what value, apart from convenience, will it add? 

Before relying on such robo-investing platforms, ask yourself one question — Can you compromise on the quality of your investments for the sake of affordability and convenience? 

Finally, you must be assured that 20 years later, the robo-investing platform will continue to exist. Many times it happens that, to capitalise on the business opportunities, companies adopt the “trial and error” approach. If they can’t sustain their objectives and fend off competition, they have no qualms in jumping ship. If a robo-investing platform shuts down overnight for any reason, investors will suffer the most.

Now the question is — why would a robo-investing platform shutdown?

The answer lies in the business model they follow.

Some robo-investing platforms are shelling out huge capital to acquire clients. If they cannot sustain the losses on their balance sheet, at some point, they might throw in the towel.

To select a worthy robo-investing platform, it should have these three things in common:

1. They charge you fees and justify it with their performance

2. They offer you direct plans, which saves you a great deal of cost over the long term.

3. They have a proven track record of providing mutual fund schemes with well-researched advice.

A good robo-advisor will be low on costs and offer you mutual fund direct plans as an investment option. Over time, this will help you save lakhs of rupees.

Read here: Why a robo-advisory platform should offer you direct plans?

To conclude...

If you are always strapped for time and your financial planning bears the brunt, then a robo-advisor can offer you a world of convenience. From KYC (Know Your Customer) compliance to transactions, everything is virtually paperless. This convenience does come at a cost, hence opt for a specialised robo-advisory service that will ensure your financial well-being and proves to be worth more than the costs.

If you have not yet zeroed in on a suitable robo-advisor, we suggest you wait, because the best robo-advisor that encompasses everything we have stated above may be just around the corner.

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