secureHow Robo-advisors make money

How Robo-advisors make money

5 Oct · 2 min read

How Robo-advisors make money

Can robots make money? Till recently, it has sounded like a science fiction question, but not anymore! The largest Robo-advisor consultancy already exists in the USA and has gained immense popularity. Now the time has come for Europe where robots have begun to arise.

Definition 

Robo-advisors are a digital consulting platform providing expertise in ​​investment, loans, insurance services, and many more. Their solutions are based on advanced algorithms that use mathematical rules for analyzing large data sets (Big Data). Robo-consulting reduces the costs of advisory services, making these services available to a wide range of clients. The software utilizes its algorithms to allocate, manage and optimize clients' assets. 

Financial stability 

The most common way to earn money with Robo-advisors is through a wrap fee based on assets under management. In the finance industry, Robo-advisors can make money by marketing the targeted financial products such as mortgages, credit cards, insurance politics, or simply cash management. While in other industries, Robo-advisor can be easily benefitted from selling products (basing on suggestions or proposing new premium features). 

Selling Products 

Robo-advisor mentioned above can sell some new features and products. Instead of charging clients a higher rate for services that they won’t utilize, Robo advisor uses its algorithm to supply a customized offer of subsequent products or the next level of services. Robo-advisors can also earn money by selling premium features. The sale can be easily preceded by presenting similar products or promoting third-party products. This possibility also applies to other services. 

Selling Ads 

Some Robo-advisors might sell ad space on their apps or websites, enabling clients to see only related and relevant ads. The Robo-advisors might sell the ad space for a flat rate or charge accordingly to the overall number of clicks or sign-ups. 

Finance Management 

Some Robo-advisors offer loans in addition to money management. Just like many other traditional firms, Robo advisors charge an annual management fee that is usually a percentage rate of current assets under management. The average annual management fee for Robo-advisors can fall anywhere between 0% to 0.75%. Most of the time, these annual account fees are lower than traditional human advisory services. 

Lower cost than human advisors 

While traditional (human) financial advisors typically charge 1% or more per year of assets under management, most Robo-advisors charge around just 0.25% per year. Robo advisors can charge lower fees because they use algorithms to automate trades and indexed strategies that utilize commission-free and low cost. Because they charge lower fees, however, Robo-advisors must attract a larger number of smaller accounts to generate the same revenues as a pricier advisor. 

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