What is Robo investing?

What is Robo investing?

What is the meaning of robo investing? In traditional, when people want to invest their money for making profit, they will look for financial experts like financial advisor to help them allocate asset. With the development of technology, nowadays we can use the robo advisor to achieve above goal instead of financial advisor. First of all, you just need to fill out a short survey answering the questions about age, risk tolerance and retirement goals, and then the robo advisor will automatically manage your portfolio.

In the US market, there are many developing robo advisor companies as listed below:

Company for robo advisor

IronFX	FXTM	Nutmeg	ScalableCapital	Easyfolio
Ginmon	Munnypot	Schwab	Hedgeable	Moneyfarm
Growney	MarketRiders	Whitebox	Vanguard	Blackrock
Betterment

Source: https://roboadvisors.com/reviews

And its common advantages as follows:

1.Hands Off Investing2.Low Fees3.Regular Rebalancing4.Tax-Efficient Investing5.Low Minimum Initial Investment Requirements

Above advantages we can compare Betterment with Wealthfront, both of them are famous in wealthy management and have lower fee than human advisor.

Comparison Between robo advisor and human advisor in fee

	Betterment	Wealthfront	Human advisor
Annual Fees	0.15%-0.40%/yr.	0.25%/yr.	1%/yr

Source: https://investorjunkie.com/36355/betterment-vs-wealthfront/

Is its prosperous perspective in the future? In the website of Statista, which provide more statistic information in robo advisor, it provides the trend in the growth amount of AUM worldwide from 2019 to 2013.

Worldwide	2019	2020	2021	2022	2023
AUM	$980,540.8M	$1,442,027.8M	$1,863,437.6M	$2,231,721.3M	$2,552,265.1M

Above table shows that robo advisor market are increasing growth, and the website predict that AUM are expected to exhibt an annual growth rate (CAGR 2019-2023) of 27.0%. Therefore, the next question is whether are traditional investment companies also applying robo advisor in order to compete with the innovative fintech companies? The answer is yes. In the pass the famous investment management corporations such as Blackrock now are creating the robo advisor for serving their clients. We can see the table as listed below:

Established Firms	Name of robo advisor
Blackrock	Future Advisor
Fidelity	Fidelity Go
Schwab	Schwab Intelligent Portfolios
Vanguard	Vanguard Personal Advisor

Why robo investing is so popular now? Is it really better than human advisor? I use the website ‘Statista’ to gather more useful information and integrate it to explain next questions. Please read the top rank position of AUM (US dollar) of robo advisor as listed below:

Ranking	Country	AUM (2019)	User (2019)
1	US	$749,703,000,000	8283600
2	China	$179,076,000,000	34344800
3	UK	$14,803,000,000	572700
4	Germany	$8,460,000,000	312300
5	Canada	$5,448,000,000	274600
6	Japan	$4,348,000,000	255600
7	Australia	$2,197,000,000	95500
total		$964,035,000,000	44139100

Ranking	worldwide	AUM (2019)	User (2019)
1	Americas	$757,102,000,000	8812300
2	Asia	$190,207,000,000	35239500
3	Europe	$30,052,000,000	1509100
4	Australia & Oceania	$2,819,000,000	119900
5	Africa	$362,000,000	93000
total		$980,542,000,000	45773800

Ranking	Asia area	AUM (2019)	User (2019)
1	East Asia	$184,405,000,000	34560400
2	Southeast Asia	$3,234,000,000	271200
3	West Asia	$2,313,000,000	202000
4	Central Asia	$157,000,000	24300
5	South Asia	$98,000,000	91600
total		$190,207,000,000	35149500

Ranking	America area	AUM (2019)	User (2019)
1	North America	$755,248,000,000	8574500
2	South America	$1,634,000,000	201600
3	Central America	$127,000,000	20700
4	Caribbean	$93,000,000	15600
total		$757,102,000,000	8812400

When I observe above Table I ranged, the AUM in the top 7 countries occupy the 98.3%AUM of the worldwide. Further observation, the AUM ranking from country, except China, all these top-ranking countries are developed country, and the AUM in developed countries occupy the 80%AUM of worldwide, which means to some extent developed countries are easier to accept robo advisor. On the other hand, form the type of worldwide, American and Asia range as top 1 and 2. And further research, you can see the top1 AUM by robo advisor is in US, and secondary of AUM is in China. China is a developing country, why is becoming number 2 ranking in AUM? I personally consider the reason is depending on the knowing the level of AI. US and China are continuing to focus on educating and popularizing people in the application of AI, so it is easy for people to accept robo advisor instead of human advisor especially in the field of wealth management..

I come from Taiwan, and notice the issue relative to Asia area. Although the website didn’t provide the information about Taiwan, we still can see the trend from the listed below:

ranking	East and Southeast Asia	AUM (2019)	User (2019)
1	China	$179,076,000,000	34344800
2	Japan	$4,348,000,000	255600
3	Singapore	$3,026,000,000	189700
4	South Korea	$613,000,000	27900
5	Hong Kong	$366,000,000	21900

ranking	Southeast Asia	AUM (2019)	User (2019)
1	Singapore	$3,026,000,000	189700
2	Malaysia	$62,000,000	19700
3	Vietnam	$36,000,000	11000
4	Thailand	$35,000,000	13600
5	Indonesia	$30,000,000	23200
6	Philippines	$25,000,000	9800
7	Brunei Darussalam	$7,000,000	800
7	Myanmar	$7,000,000	1900
8	Cambodia	$4,000,000	1000
9	Laos	$2,000,000	400
10	Timor-Leste	0	100
total		$3,234,000,000	271200

ranking	East Asia	AUM (2019)	User (2019)
1	China	$179,076,000,000	34344800
2	Japan	$4,348,000,000	255600
3	South Korea	$613,000,000	27900
4	Hong Kong	$366,000,000	21900
5	Mongolia	$1,000,000	300
total		$184,404,000,000	34650500

Firstly, the AUM in East and Southeast Asia separately occupy the 18.8 %and 0.3%AUM of worldwide, which is lower proportion than North America. Why is the proportion in Asia lower than Americas? I personal think the Asia customer prefer human advisor than robo advisor. Because we built the trust in long term relationship with personal financial advisor, in short term it is hard for customer to change their concept using robo advisor. In addition, the technique of robo advisor is novel, and the regulation by law is still unclear specification in many Asia country. But we can see the area from East and Southeast Asia, the top 5 by sequence are China, Japan, Singapore, South Korea and Hong Kong. We all know above countries have the International Finance Centre such as Shanghai, Tokyo...etc., which imply the higher level of international, the easier to gather capital, the easier to use the robo advisor. Furthermore, in southeast Asia, the AUM in Singapore is virtually above 50 times more than that in other area, which means other place still has potential to develop the robo advisor. But we still need to watch whether the money of investment in robo advisor will flow to place of highest international market instead of lagging country which is creating the robo advisor.

lastly, another point we should notice, the user in China is four times more than that in US, but the AUM in US is four times more than that in China. Why is this happen? Whether is people in US richer than those in China? Or whether is the large investment institutions in US investing more money in the fund of robo advisor than those in China? Or whether is the technology reducing the threshold for China investor? Above questions need us to further research and discussion.

In my point of view, I think the robo advisor is more advantages than human.

First, Robo advisor can be anytime and anywhere to monitor and remind customer when the portfolio is deviation from the set target. In addition, with the investing threshold in robo is lower than that in human, nowadays everyone has its smart phone especially in the young people, which can help young man and people who have not own high asset enhance the investing behavior and thus everyone can invest.

In addition, the most of robo advisor use the passive investment such as ETF instead of active investment. For me, it is relatively stable and easy to follow the market. The investors follow market in long term, they don’t need to watch the market at any time. The investor just needs to care about the trend of economic or the trend of industry in the future, they don’t need to understand fundamental analysis and technique analysis.

In a word, the robo advisor provides the new generation enter a new invest field. People don’t need any financial background and many moneys to do a financial planning, so it is the time for Financial Inclusion System.

For the status quo of Taiwan, it is still not easy that people especially in high asset clients are using robo investing. I think the reason is that people in Taiwan need to “warm” communication and service, it is not easy to convince people only using the “cold” robo machine. So, my personal observation is that we can combine the advantages from the human and robo advisor to offer the high-quality service.

Supplement my previous explanation:

Active and passive investment strategy:

The definition of active investing refers to an investment strategy that involves ongoing buying and selling activity by the investor. Active investors purchase investments and continuously monitor their activity to exploit profitable conditions. On the contrary, passive investing is an investment strategy to maximize returns by minimizing buying and selling.

Furthermore discussion, active investors typically look at the price movements of their stocks many times a day, but passive investors do not seek to profit from short-term price fluctuations or market timing, which means buying a security with the intention to own it long term.

The pros and cons in active and passive as listed follows:

	Active investing	Passive investing
Advantage	Flexibility Hedging Tax management	Ultra-low fees Transparency Tax efficiency
Disadvantage	Very expensive Active risk	Too limited Small returns

In a word, active investing need investors to research by fundamental and technique analysis and to build their portfolio. The goal is to defeat the return on market. However, Passive investing don’t need to further research in stock, rather choose a basket of stocks such as ETF to follow the index and acquire average rate of return on market.   

From the mentioned above, it is not hard to think about why the robo investing is so popular now. The mechanism in robo advisor is similar to application in passive investment strategy, which can reduce the people’s cost in time to do more research in stock. In addition, the lower fee also can intrigue young or non-financial background people to invest.