Personal finance in the age of automation 👀👾💳

Do you feel like you’re increasingly bombarded with tech-y, futuristic jargon, but have no real idea what any of it actually means in practice? While we can’t give you a complete summary of all the latest developments in fintech (that’s financial tech for those of you who’ve been living under a rock), because you’d be stuck with us ‘til morning, what we can offer is a low-down on handy tools that can make your financial life much easier and more streamlined. But first, a little intro to the world of automation.

Emerging technologies are steadily and ruthlessly disrupting the financial services; navigating this disruption can be tough for the legacy players (eg. the big banks), but the good news is that the customers - that’s you - benefit from much of the changes. Millennials have been credited for the rapid reshaping of the industry - as the largest and most technologically adept generation in history, the generation proved that things that were once deemed necessary are now outdated or inefficient. Fintech startups have responded to the way millennials manage their money and their attitudes to traditional financial services (according to Neopay, 50% don’t trust their high-street bank). Although millennials were indeed the primary driving force for these changes, they’re not the only ones profiting from the innovation: according to a study by Spectrem Group, the average robo-advisor user is 48 years old.

  • What’s the deal with automation?

In today’s world, a large portion of judgments and decisions are made by smart machines, and traditional investment firms haven’t evaded this trend. Recommendations usually made by financial planners and brokers—advising what financial assets a client should invest in— are now often made by computers, providing a service known by the somewhat Terminator-esque term “robo-advisors.”

Deloitte reports that "automated financial advisors can offer unbiased, data-based advice, but humans, often less than rational in their actions, require some behavioural science interventions to ensure they make the best use of it.”  In other words, robo-advisors provide basic investment advice, like matching portfolios to risk preferences and asset allocation. Check out this article on effecting behaviour change in a world of automated financial advisers.

Need a better idea of how popular robo-advisors are? Get this: BI Intelligence, Business Insider's premium research service, forecasts that robo-advisors will manage approximately 10% of all global assets under management by 2020. This would equate to approximately $8 trillion. So, why is the service so in-demand? It’s actually quite simple - many consumers find financial management stressful and time consuming. The ability to automate routine (or, some might say, mundane) financial tasks helps ease unnecessary stress, and who doesn’t want a hassle-free financial life?

  • Is robo-investing for you?

If you’re considering using a robo-advisor, you’ll be heartened to know that you’re in good company: millennials, retirees and high-net worth individuals all use the popular automated investment service. Deloitte points out that the typical mentalities of a re-wired investor (someone who is more likely to use the service) are: keen to stay in control, have a DIY attitude, skeptical of authority and very much all about ‘anytime, anywhere’.  

  • Keep the drawbacks in mind

It wouldn’t be fair to praise a service without also highlighting it’s drawbacks, so here’s a couple of things you have to keep in mind: a major issue with tech-driven financial advice is that it relies on a very small amount of information provided by the client. Everyone’s risk profile is different and constantly changing due to various factors - from income fluctuations to getting married and having children - which simply can’t be boiled down to a couple of short answers you provide upon signing up to a robo-advisor. Robo-advisors thus lack the ability to directly communicate with their clients and adapt to their changing circumstances, which can take a toll on your investments. Because of this, critics say that robo-advisors are overly simplistic and even a bit gimmicky.