Without the massive computational power required to arrive at decisions, some advisory platforms can be misleading, say experts.
It was less than two years back when robo-advisory platforms arrived in India. These automated and highly data-driven platforms were just what the doctor ordered for investors who neither have time, resources or the know-how to manage investments.
But as the 'robo' hype grew, online platforms have started using the term 'robo' freely in a bid to appeal to investors. Experts say investors must find out what makes their chosen advisory platform 'special', or regret later.
With multinational companies snapping up unique tech-enabled personal finance platforms and venture capital investors pumping money into investment platforms, the desire to use the word 'robo' or 'automated' has spread like wild-fire.
"Calling yourself robo is becoming a fashion. But remember the quantity and quality of data drives automation. We can tell the consumer what is the medical cost of ailments in his or her specific city. This is done by crunching data points that are refreshed quarterly (across top 10 cities). For our inflation index, we use actual household expense records over a 20 year period," says Bigdecisions co-founder and CEO Manish Shah.
What is also important is how the data is collected and used.
Abhishake Mathur, head of investment advisory ICICIdirect says that merely asking investors to fill up an online form with 5 or 10 questions is not 'robo'. "For our robo advisory platform Track and Act, we ask for 2-3 times the information than a human advisor would. The mood of the investor can change the answer. You need to account for that in your model," Mathur added.
Merely having a snazzy website to woo gullible investors is not enough. Without the massive computational power required to arrive at decisions, some advisory platforms can be misleading, say experts.
"We use artificial intelligence and machine learning. We run over 15 million simulations to create a custom portfolio. It's a lot of work. We warn investors about possible downturns using data and analytics," says former Google employee Vishesh Handa, now head - service delivery at ArthaYantra.
Do robo advisory platforms execute transactions?
5nance founder & CEO Dinesh Rohira, who has years of experience working for Microsoft, IBM and HP says, "That is the future, ultimately where robots advise and execute transactions on your behalf. The question you need to ask is what is a robo platform giving me extra? We will soon completely automate some basic services so that consumers can have like a self-driving car experience."
But many online advisory platforms are too transaction-focused and aggressive in terms of advice that can backfire.
Sanjiv Singhal, founder & COO of MF-focussed platform Scripbox says: "With only 2-3% people investing in financial securities like mutual funds, the scope of advisory itself is very large. To handle this scale, algorithmic advisors will indeed play a big role alongside human advisors. But we don't chase returns or encourage our customers to do so. If you follow the process, you will get better outcomes."
Experts agree that robo advisory platforms in India have a bright future. In the US, robo advisor Betterment manages $5.8 billion. Investments in Charles Schwab Corp's "robo adviser" service grew to exceed $10 billion in September, more than double the year-ago level.
At the moment, all robo advisor platforms in India put together don't even touch $1 billion, according to industry sources.
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