Would you trust a robot with your finances?

how do they work: Firstly, a robo-consultant evaluates a client profile through a questionnaire, which will ask for details like goals, risk taking ability, etc. With this data, it suggests portfolio recommendations, just as a human advisor would do.

However, it does so autonomously using algorithms and techniques such as artificial intelligence and machine learning on data.

A robo-advisor will recommend the portfolio that best matches the client. Customers have to decide which of these they want to take. If they feel that any of the recommendations are not in line with their expectations, they can make adjustments in their profiles to suggest alternative portfolios. However, robo-advisors in India are at a very nascent stage.

“There are mostly transaction platforms that are not robo-advisors. “Only a few will help you manage your asset allocation, rebalance your portfolio, and weed out the non-working funds,” says Prateek Mehta, co-founder and CBO, Scripbox.

A trading platform is very low cost, but has no accountability and does not provide any added value. This is for the do-it-yourself investor who knows how and where he wants to invest.

“Most of the recommendations that robo-advisors provide, with a few exceptions, are pretty basic right now. Based on the data you provide, a robo-advisor will put you in one of several buckets—whether you are aggressive, moderate, Be it conservative or some of these colors. Depending on a particular profile, a particular model portfolio is recommended to you. But there are more shades for a human being,” said Milan Ganatra, Founder and CEO, 1Silverbullet and Miles Software Former founder and chief executive of

Also, he says that as the name ‘robo’ suggests, it is something that performs a mechanical task, which may not always be intelligent. But the robo-advisors that will take shape in the coming few years will be far more intelligent and they will have different data inputs to better understand a person.

Robo-advisor vs. Human Advisor: The question naturally arises: Are robo-advisors better than human advisors?

“It would be unfair to compare human advisors to robo-advisors. Both have their own unique abilities. The advantage of robo-advisors is that they do not operate on emotional biases, which allows for the creation of an optimal portfolio and limits any significant downside,” says Prakash Gadani, CEO of 5paisa.com.

Agarwal explains the pros and cons of robo-advisors vs. human advisors. The advantage of a traditional advisor is that you have a human to talk to in a bear market to advise you. Also, since you are talking to someone, there may be more scope for you to customize a plan. The flip side is that advice is based on a person’s ability, their emotional intelligence in the market, and their ability to communicate and guide you well. For robo-advisors, professionals use rules to build your portfolio, which means unethical, logical plans. The flipside is that the rules are only as good as the people who write the rules; These rules can often be static, and the investor does not have a human being to talk to about any concerns.

cost savings: Robo-advisors come with significant cost savings. The fees charged by robo-advisors can be as little as 1% of assets under management. This is simply because a human financial advisor can only work with so many clients at a time, whereas a robo-advisor can see multiple clients at once.

What to see? Since a platform is only as good as the people behind it, it is important to understand the genealogy of the founders who built the robo-advisory platform.

Avinash Luthria says, Advice-only Financial Planner and SEBI-Registered Investment Advisor (RIA) at Fiduciaries. “Intelligence, integrity and value for money are ways in which an individual should evaluate both an RIA as well as a robo-advisor.”

“Securities and Exchange Board of India (SEBI) regulations state that the managing director of a (specific) robo-advisory entity is responsible for all investment advice that he gives. Hence, clients can check the creditworthiness and reputation of the Managing Director before formally engaging with the robo-advisor.”

The costs associated with availing the services, mutual fund houses with their incentive structure and hidden costs, if any, should also be understood.

“Finally, the frequency of their advice – if the market turns, your portfolio asset allocation changes dramatically; how often do they intervene and give you rebalancing advice?” Agarwal asks.

Ganatra believes that robo-advisors are selected on the basis of the fee that is being charged, and how good the user experience is on mobile or desktop platforms. But there is no data point to say that one robo-advisor is giving you better advice than another.

Are they for you? “For those who are affluent and in a more mature stage of investment, companies are coming up with more hybrid models to help them. Such solutions are more granular and can provide more specific solutions to the client,” says Mehta.

Aggarwal agrees, “Generally with money management, I believe a co-bot model works best. The co-bot is a human consultant leveraging technology for planning. This allows for the best of both worlds where there is a human touch to the advisor but more standardized, emotional advice that is less dependent on the caliber of the human advisor.”

However, if you are an early-stage investor looking for services such as asset allocation, portfolio curation and rebalancing and don’t want to go to a traditional financial advisor, either you don’t have the time or you think the fees are high. To get you started on your investing journey, a robo-advisor may be right for you.