In these times of ultra-low interest rates and high inflation, more and more people are seeking low-cost financial solutions.
Indeed, the asset management industry and investor requirements are evolving considerably. Cost is now much more of a future performance predictor than was ever perhaps realised before, and investors require an extensive choice of cost-efficient, diversified financial solutions to reach their long-term objectives.
Naturally, there is an extensive range of model portfolio services available, each bearing a different level of risk depending on the risk appetite of the investor.
That said, a model that balances the cost-efficient advantages of a passively-managed investment, whilst at the same time allowing access to a greatly-diversified actively-managed portfolio, in effect, combines the ‘best of both worlds’.
Of course, there are many advantages and disadvantages to both investing styles.
Passive investing can boast ultra-low fees and transparency, but can be considered too limiting and with small returns.
Whereas active investing offers flexibility, hedging options and tax management, but adversely can be costly and very high risk.
Consequently, many advisers are of the opinion that the optimum strategy is to blend active and passive investments. There is no necessity for an either/or in this case. Combining both can help to further diversify portfolios.
Not surprisingly, it’s widely regarded that failure to properly diversify a portfolio is one of the biggest investment mistakes. Spreading money around over asset classes, geographical regions and industrial sectors is an essential tool to manage risk.
In addition, savvy investors are aware that a frequent portfolio review is vital to make sure that investments remain on track, and any modifications can be made should the markets or personal circumstances alter.
Furthermore, blending robo-advice with the human element overlay of an actively managed solution, allows clients to greatly benefit from the industrialisation of the asset management industry.
As you might expect, robo-advisers are set up to ensure accuracy is at a maximum, but certain investors can still raise concerns over a lack of human contact. Therefore, a robo-adviser platform that includes a human connection could be the ideal alternative.
This could be a robo-advice program with contactable client service support, or alternatively, advisers who predominantly rely on computer programs to offer investment advice.
Indeed, robo-advisers are advancing all the time. As such, they can be more likely to offer personalised investing advice to clients. The investment advice given is founded on details including age, family status, retirement ambitions or investing preferences. These details are then plugged into algorithms to offer the most personalised portfolio available.
However, robo-advisers are unable to ‘ad-lib’. Should an investor have unique circumstances that are not considered in the initial question stage, these will not be taken into account.
This is predominantly why merging robo-advice with human interaction can circumvent such issues, and takes into consideration investors’ individual lifestyle, personal financial situation and long-term ambitions.
Indeed, the financial services industry is evolving and developing at lightning speed. Client expectations and monetary policies are continually advancing, hence the need to provide for each one of these mutable needs and requirements going forward.