All That You Should Know Regarding Custom Robo Advisor Solution

Robo Advisor is an automated platform whose workflow is based on mathematical algorithms that do not require the intervention of a human consultant. Special programs such as custom Robo advisor solutions are based on AI technologies and automatically distribute the investor’s assets (the process depends on the client’s attitude to risk, his investment horizon, and goals).

History of Robo advisor solution

The scientific basis for the activity of Robo-advisers was laid by the creators of the modern portfolio theory – Harry Markowitz, James Tobin, and William Sharp. They appeared in the United States after the 2008 financial crisis, where the model of active management of investment assets of the largest banks was unable to protect investors from the crisis in the stock market.

After the USA, custom Robo advisor solution automated platforms began to be used in Canada, Australia, China, and Europe – Switzerland, Germany, and since 2017 in Russia. Leading Robo-advisers today are located in America, where Vanguard Personal Advisor Services ($ 115 billion in assets under management in 2019), Schwab Intelligent Portfolios ($ 37 billion), Betterment ($ 16 billion), Wealthfront ($ 11 billion ), and Personal Capital ($ 8.5 billion).

How Does a Robo-Advisor Work?

Robo-advisors use algorithms to understand and predict investor preferences, risks, and goals. So what is a relatively complete personal wealth management process? First, investment advisors understand clients through face-to-face interviews, questionnaires, personality tests, etc. And provide advisory services; then drawing up IPS (investment plan) and asset allocation plans (SAA) for clients; after customer confirmation, execute transactions to create a portfolio (Execution); Regularly monitor the portfolio and adjust the position (Monitoring and rebalancing); analyze and report on portfolio performance quarterly (Performance), etc. Below is a step-by-step explanation of how the custom Robo advisor solution works. Let us dive into the details.

1 . IPS

IPS This is the core and core of money management services directly related to the client’s profit and risk objectives. IPS should include the following parameters (abbreviated as RRTTLLU), target return (risk), investment period (time horizon), liquidity needs (liquidity needs), tax needs (taxes) and regulatory requirements (legal and regulatory), unique circumstances; in addition, we also need to consider the client’s welfare status, child status, estate planning, personality traits, and so on.

2. Asset Allocation

After determining the client’s return and target risk in IPS based on modern portfolio theory, the custom Robo advisor solution finds the effective frontier for the client (more on this later) and finds suitable asset products in the major asset classifications.

3 . Execution

This stage involves executing transactions and building portfolios. The trading team of the company usually performs this part.

4 . Monitor & Rebalance

Typically, the portfolio is reviewed on a regular basis (monthly or quarterly). Once the deviation threshold is exceeded, a rebalancing operation is performed to ensure that the portfolio is in line with the target asset allocation.

5 . Performance Attribution

The report is directly related to whether the client is satisfied with the results of money management, so performance reports should be sent to the client on a regular basis, and the performance should be reported in the report so that the client can recognize the ability to manage more.

6 . Final Step

Tax planning is very important in personal wealth management, including inheritance tax, property tax, deferred capital gains tax, etc. There are many tax breaks associated with investments in the United States, and the accounts in which investments are made vary greatly.

In conclusion, Wealth management services must be personalized. A top-notch private financial advisor can serve no more than 20-30 clients, but the threshold for clients is also relatively high, with an average asset of around US $ 1 million. Improve your business income by integrating custom Robo advisor solutions into your digital business. Investment advisors in the business, such as brokerage agents, often have to serve over 200 clients with one person, and several services can be tailored for clients.


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