Robo-Advisors explained (Workflow Process) Betterment, Wealthfront, Vanguard Digital Advisor, Schwab

Описание: The video refers to the following questions:
What is the process of a robo-advisor?
How does robo advice work?
What is the main theory that robo-advisors use to design their portfolios?
How do robo-advisors typically rebalance investment portfolios?
How does a robo-advisor work?
Is it a good idea to have a robo-advisor?
What is the role of a robo-advisor?
Can robo-advisors make you money?

Worldwide robo-advisors show strong growth. Vanguard offers two robo-advisors, Vanguard Digital Advisor and the hybrid Personal Advisor Services. Schwab Intelligent Portfolios is the number 2 in the United States measured by Assets under Management. Betterment and Wealthfront have been the early robo-advisors in the U.S. Personal Capital Advisors. Blooom, Acorn, M1 Finance, FutureAdvisor by BlackRock and SigFig also belong to the biggest U.S. robo-advisors. But you have robo-advisors worldwide like e.g. Scalable Capital or Raisin in Germany. In the UK you find Moneyfarm, Nutmeg, InvestEngine, Clim8 or Wealthify. In India you find Arthayantra, BigDecisions, FundsIndia, Scripbox or MyUniverse ZIPSIP. In China we find Quantifeed, AQUMON, PINTEC, QuantBank and Wealthbetter.

All these robo-advisors have differences but also many common features. In this video we concentrate on the common features in the workflow and processes and explain them.

First, appropriate asset classes are identified. These asset classes, suitable for Robo Portfolios, often comprise stocks, bonds and inflation assets. ETFs which best represent these asset classes are pre-selected.

In a next step, the investor is guided through an online questionnaire. The purpose here is to filter individual investment preferences such as risk tolerances.
The investment strategy is thereafter implemented. Many Robo Advisors rely on the Modern portfolio theory for asset allocation.

Another important step of a Robo Advisor is the monitoring and adjustment of the allocation of the created portfolio. The monitoring and rebalancing ensure that the individual portfolio risk always corresponds to the client’s expectations from the questionnaire.
Finally, the investor can regularly view the performance and other key figures of the individual portfolio via the Internet or an app.
The first step of the workflow of a typical Robo Advisor consists of the identification and pre-selection of suitable investment products. The combination of asset classes is empirically proven to be more successful in maximizing profit per risk level than buying individual stocks. Therefore a set of appropriate asset classes is identified. The asset classes can be broadly divided into stocks, bonds and other assets. The other assets comprise for instance investments in assets which particularly hedge against inflation.

Each of the asset classes has several subcategories. For example, for stocks there are developed market stocks, emerging market stocks, U.S. stocks and so on. For each subcategory, a suitable investment vehicle is selected, which is an Exchange Traded Fund or ETF. ETFs are financial assets that are designed to replicate a reference index as precisely as possible.

But, not all ETFs are suitable for a Robo Portfolio. Thus, ETFs are selected according to the specifications that match an automated investment strategy. Selection criteria for ETFs include fees, tracking error, liquidity and securities lending.
The next step in the workflow of a Robo Advisor is the Onboarding process which goes hand in hand with an online questionnaire. Administrative tasks are handled immediately and online. These administrative tasks may include for instance the client identification, the opening of a securities account, a declaration of consent or the submission of reference account details.

The online questionnaire is usually performed immediately after a customer has registered. The questionnaire is not repeated regularly. The questionnaire is designed to determine the client's financial objectives, investment horizon and risk tolerance prior to investment. The questionnaire can be structured in the form of a decision tree and it usually takes no more than a few minutes to answer.

The answers in the questionnaire serve as a basis for investment decisions. Depending on the risk tolerance of the investor, investments are made in a more opportunistic or a more conservative ETF portfolio.
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