Robo-Advisors explained (Principles) Betterment, Wealthfront, Schwab, Vanguard, Bloom, Acorn, Nutmeg

Описание: Worldwide we have seen the emergence of robo-advisors. What is the reason of their success and what are the common princples of the business model? The video explains the principles of Robo-Advisors and the following questions: What is the theory of a robo-advisor? How do robo-advisors work? What is the algorithm behind robo-advisor? What are the rules for robo advisory? How does robo advice work? What is the meaning of robo-advisor? Is robo-advisor worth it? What is the role of a robo-advisor?

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 reasons of the emergence of robo-advisors and the common principles of the business model.

Shortcomings of traditional banks:
Lack of advisory due to liability of investment advisors.
Conflict of interest due to product-oriented and commission-based sales.
It is difficult to get individual advice for small investment amounts due to high costs for the bank.
No sustainable outperformance of actively managed funds compared to the market benchmark.

New trends in investments:
The bank branch as a market entry barrier for addressing customers can be circumvented using the Internet.
Widely and publicly available financial information accessible via the internet.
Emergence of a vast number of innovative start-ups trying to revolutionize the traditional financial sector.
User experience has a top priority and investors expect this experience also for investments.

The Robo-Advisor:
The customer communicates primarily with a computer.
Human intervention in the consulting and investment process is absent.
Services are mainly provided by a mathematical process or algorithm.
Most Robo Advisors have a banking or a portfolio administration license.

The Robo-Advisor Process: 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. Based on the client's preferences, which are derived from the initial questionnaire, the client’s funds are allocated to a specific and adequate portfolio. The so-called asset allocation, i.e. the distribution of funds into the various investment products, is fully algorithm-based. 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 videos explain different fintech business models and refer to the book Fintech Business Models by Professor Matthias Fischer published in February 2021.

The channel covers fintechs in the area of payments, robo advisory, Personal Finance Management, crowdfunding, artificial intelligence, blockchain, cryptocurrency and innovative digital solutions in banking.