By Wolfgang Jud, Managing Director of CREDO asset management GmbH
For several months, the debate about the so-called “Robo-advisor” in Germany is becoming increasingly important. Will investors continue to rely on the algorithms of a robot and move their businesses to the Internet? How reliable are these new providers and what are the strengths and weaknesses?
What’s the idea of the “consultants”? – The customer answered on an Internet platform the questions of computer tools, and then receives a proposal for a standardized asset management strategy. With a few mouse clicks he opened on the Internet platform, a custodian at a partner bank and selects a rule the proposed strategy. Settlement is largely standardized and automated. Individual requests will not be considered.
The lack of consultation is the decisive criterion for the customer
In the classic investment advice, the advisor has to work together with its customers through a whole series of questions. The questionnaires must be filled in with the legal requirements. The customer makes information about himself to its investment objectives, its knowledge and experience to his willingness to take risks and usually also to his previous equipment. Without this information, investment advice is possible!
Only when the data fully available, the specialist makes the investor concrete proposals that both take into account the particularities of the financial product as intended are also attached to the customer. Here, the consultant goes especially to the individual problems of its customers. In the “Robo-Advisor” eliminates this advice. The “Robo-consultants” retreat to their terms and conditions and provide only one “execution-only” performance. The lack of consultation saves considerable costs and advisory capacities. Also, it is unlikely to lead to lawsuits for faulty investment advice, since legally held no investment advice. Therefore, the performance of “Robo-consultant” on the Internet is often more economical than the traditional asset management.
The quality of the investment strategies
As the tools of “Robo-advisor” on algorithms are based, are exchange-traded funds, ETFs, actually offer. The modeling based on historical data only works on the basis of indices. In actively managed funds the deviations are too high and unpredictable. These “robo-models” be interesting for fans of passive investing. In my view, one of the biggest disadvantages of ETFs is the capital weighting of the underlying indices.
This means that the largest companies are weighted the highest in a stock index. In regional terms, this means that stocks from the United States are represented as the largest market in the world and most in the major indexes. A German investors may wonder whether this corresponds to his ideas. To compensate for the weaknesses he classic ETFs, the ETF providers have developed a new generation of products that take into account other factors such as value orientation, company size and dividend strength. New calculation models reflect these factors into the portfolio design. Interested investors should address the different models, in order to avoid unpleasant surprises later.
The consequences for customers and consultants
From my perspective, consultants should the possibilities of digitization sensible to use and incorporate into their advisory processes. This requires at the consultants requires a willingness to deal with the models offered and the historic performance. Only then can secure judgments about the quality of the tools and their results cases.
The customers, however, underestimate the purchase on the Internet often the importance of the service of a product. This also applies to the asset management. Not for nothing are these new products establish just in good market phases if the prices rise. From my experience hanging the customer’s individual results from his entry point. When he has gone and when he sold? These decisions can neither an optimized Internet tool nor a standardized asset management decrease the investors.
Experience shows that the inflows in mutual funds are at their highest when the markets are previously gone well, and decrease when the market corrects. Investors must provide their own emotions “under control” and make their decisions systematically. This can not afford a “Robo-Advisor” – probably but an experienced consultant who has experienced the different phases themselves and the customer through all the highs and lows. Therefore include new technologies and qualified counseling together! Not an “either-or” but a “both-and” could be the solution!
More and more private investors in Germany trust in their investment in non-bank asset managers. Free of product and selling interests they can best advise their clients. More information can be found at www.vermoegensprofis.de.
The above text reflects the opinion of the columnist resist. The finanzen.net GmbH assumes no responsibility for its accuracy and disclaims any recourse.
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