5 Oct · 2 min read
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.
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.
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).
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.
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.
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.