Robo Advisor: What You Need to Know

Key Points

  1. Robo-advisors are digital advisors that manage investments with minimal human intervention.
  2. Robo-advisors use algorithms to understand and predict what investors want.
  3. Robo-advisors have revolutionised the financial industry nowadays.

Wealth management is a daunting task. Planning your investments can seem like an overwhelming and challenging process, but what if there was software that could manage all of those pesky details for you?

In a world where automation has become commonplace across every industry, you can find that almost everything is automated, from transportation systems to healthcare providers. Robo-advisors are another choice among many who want their wealth managed efficiently without keeping up with the market daily.

Robo-advisors are one of the most popular ways to invest today. These online services offer low fees and automatic investing that removes your busy schedule without sacrificing quality or advice. However, before you dive into this trend, you might want to make sure if that is a right fit for you. Let’s take a more profound step to understand.

What is a robo-advisor?

Imagine a world where you could have your financial life managed by an intelligent software program. Robo-advisors are digital advisors that provide advice or manage investments with minimal human intervention, which is perfect for those beginner and busy investors. Robo-advisors are a cheaper alternative to traditional financial advising, and these products also offer investors more choices.

Human beings are fallible and even the best of us can make mistakes. That’s why robo-advisors have built-in hedging mechanisms to minimise their clients’ risks during investing.

Robo-advisors come in all shapes and sizes, but they do one thing, invest your money for you. Some offer more specific services like socially responsible investing (SRI). At the same time, others also have a tax harvesting feature that sells investments at losses to offset capital gains on other investments or income taxes!

How does a robo-advisor work?

Robo-advisors use algorithms to understand and predict what investors want, usually by asking them psychographic or demographic questions. They do this to create models with portfolios based on your needs, as some individuals prefer high-risk portfolios, while some choose low-risk.

Basic profile questionnaires will include gender, income, and liability status queries. Individuals are also asked how much they are willing to take risks with their money and what kinds of assets they’d prefer to invest in an investment portfolio for the future.

Simplistic robo-advisors will use this information to create the investor profile, but comprehensive ones look deeper by using AI and data from financial transactions like investment banks or credit card purchases. This information helps them understand your actual behaviour, and they know what you’re suitable to invest in for your portfolio.

Once your funds are invested, the robo-advisor will automatically rebalance it for you to ensure the target allocation remains close. They encourage investors to make small monthly deposits and use those contributions as maintenance, capitalising on any growth or protection against losses.

Types of robo-advisors

Robo-advisors can be categorised in their technical competency, revenue structure, or scope.

  1. Technical competency
  2. Robo-advisors are divided into two main categories: simplistic and comprehensive. Simplistic advisors use conventional profiling to come up with a portfolio. Potential investors have their risk profiles assessed via short questionnaires. This data will be evaluated based on their goal in designing the perfect investment strategy for them!

    Comprehensive advisors use AI and data to predict investor behaviour, which helps them create a more in-depth understanding of your profile. The AI helps to create a personalised plan for you by analysing your current financial situation and future needs. The data reveals your net worth, current liabilities, and spending patterns.

  3. Revenue stream
  4. Some robo-advisors earn income through a commission from the manufacturer of a product they are promoting, but others charge an advisory fee from investors. A conflict of interest can arise when a robo-advisor’s income depends on the manufacturer, as it may recommend products with favourable reviews for its own financial gain. The latter is free from such conflicts because it does not depend on the manufacturer for its revenue.

  5. Scope
  6. Robo-advisors not only provide investment advice, but some also offer a more comprehensive range of financial services.

Pros of robo-advisor

Here are the top advantages of utilising a robo-advisor to invest and deal with your portfolio.

  • Cheaper compared to a human advisor
  • For those who don’t want to deal with the hassle of managing their investments, robo-advisors are an affordable alternative. They automate most or all investment processes and don’t cost much, making them significantly less than human advisors!

  • Smaller portfolios are acceptable
  • Robo-advisors often have lower account requirements than traditional brokers. For example, with a minimum starting capital of RM100, you can invest in global exchange-traded funds (ETFs) through one of the robo-advisors in Malaysia, MYTHEO.

  • Require no research or oversight
  • Robo-advisors are financial platforms that take the hassle out of investing. You don’t need specialised knowledge or experience, as it’s completely automated! These bots do all the work as they analyse your portfolio and decide what investments will be best suited.

Cons of robo-advisor

Nothing is perfect, and robo-advisors have their disadvantages as well.

  • Lack of choices and control
  • The lack of choice in investments is a major downside to all robo-advisor users. They don’t offer individual stocks, bonds, or other exotic alternative investment options for their customers’ portfolio building.

  • Lack of human-to-human interaction
  • Robo-advisors are revolutionising the world of finance, but they can be challenging to work with if you need help or have questions. Clients usually find their way through a FAQ page on an online platform. However, customer service will usually ONLY provide assistance in resolving technical issues. They will not give any financial counselling nor explain investment strategy.

  • The portfolio is not fully personalised
  • Robo-advisors generally apply general criteria to determine which portfolios are best for customers. Customers are shoehorned into one of the three pre-existing models portfolio (growth, income, growth + income). This is based on your questionnaire’s basic risk tolerance, income profile, and rudimentary investment goals.

Best robo-advisors in Malaysia

Investing with a robo-advisor is one of the best ways to grow your wealth. You can diversify across multiple investment products and enjoy returns far more significant than you would get from sitting on money in banks.


While robo-advisors may not be suitable for everyone, their potential to revolutionise the financial industry is hard to deny. With the help of artificial intelligence, robo-advisors will soon become more intelligent and able to learn our behaviour more accurately. It might be able to predict our preferences and make the most appropriate decisions.

Whether it is right for you depends on your motivation. If you need validation or a personal discussion before making an investment, then human wealth advisors may be the best option. However, if access and ease of transaction matter most to you, choosing a robo-advisor will get these tasks done quickly with less hassle!

If you feel like robo-advisor is not something you want to invest in, check these articles for more options: Understanding Types of Investment in Malaysia | Top 5 Low-Risk Investments in Malaysia

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