The Popularity of Robo Advisors: A Lesson in FinTech

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Jeff Broth

What are Robo advisors, and why are they increasingly popular in the investment landscape? This is an important question, and one which requires careful analysis. Robo advisors are essentially automated investment algorithms. US, Canadian, UK, European and other investors are taking to Robo advisors in their droves. These Robo advisors serve as a popular way to actively manage an investment portfolio, sans all the high fees, commissions, and charges that are typically associated with employing investment professionals.

Instead of using human fund managers, sophisticated software is used to actively buy/sell financial assets. From an investment perspective, Robo advisors makes sense. Casual investors may not have the time, or the wherewithal to understand market mechanics and manage their financial activity from minute to minute, or trade to trade. That’s where Robo advisors come into the picture. Among the many benefits of utilizing such cutting-edge technology are the rebalancing of financial portfolios, and the re-investment of dividends. Merits aside, it’s important to understand the following aspects of Robo advisors, before picking one to use.

  • Robo advisors are still in their infancy stages, and full testing needs to take place. Several leading investment experts believe that the only way to fully justify the inclusion of Robo advisors as part of an investment paradigm is if they have been tested during recessionary times.
  • Robo advisors are not necessarily as flexible as human fund managers. Algorithms are not 100% customizable to personal investor preferences, so it’s important to pick the right Robo advisor for your needs. The emotional components of investing are only addressed through human fund managers – Robo advisors have not advanced to that level yet.
  • Robo advisors do not guarantee the best results across the board. Simply because it’s a robot advisor, and devoid of emotion, doesn’t mean that it can predict or anticipate the best investments at all times. True, it removes the emotional component from investing and picks based on technical and fundamental aspects – but that is not always a barometer of future performance. Risk is an inherent component of all forms of investing activity.
  • Robo advisors are not fully understood. Unfortunately, the pace of technological change and progression has outstripped human adoption of it. Multiple examples abound, such as the cryptocurrency boom which began in 2007, but only really started taking root in 2017. Much the same is true of Robo advisors which have significant upside potential vis-à-vis technological innovation and investment merit.
  • Robo advisors can assist you with actively-managed financial portfolios by reducing your tax losses. Tax loss harvesting is a subject unto itself, but there are significant cost savings that can be enjoyed through Robo advisors.
  • Robo advisors are cost-effective solutions especially when compared to fund managers, and investment gurus. This is the primary reason why they’ve disrupted the financial landscape. A Robo advisor could offer free services to clients whose asset base is $10,000 or less. The cost of using a Robo advisor service will increase incrementally for greater investment amounts.

Features to Look for in the Best Robo Advisors

Several of the factors listed above are sacrosanct in your decision to choose one Robo advisor over another. One of the leading Robo advisors currently on the market is offered by BMO. Clients are advised to thoroughly read the BMO SmartFolio review to ensure that they understand precisely what they’re getting before accepting a Robo advisor to take care of portfolio management.

The SmartFolio system used by BMO has already received plaudits from across the financial world. The adoption of FinTech technology doesn’t always meet with success when it is infused into traditional banking models – but in the case of BMO, it is resonating well. As the first large-scale Canadian bank to use a Robo advisor-style algorithm as part of its investment portfolio management system, BMO has succeeded where many others have not even ventured.

Canadian investors have the option of choosing a conventional investment approach to managing their portfolio, i.e. fund managers, in addition to partial semi-management of their own activity. However, the infusion of automated algorithmic software to process decision-making and trading activity is a welcome boost. The BMO SmartFolio paradigm is unique: BMO is the oldest Canadian bank, yet it is using the latest technology, and it is the first major Canadian bank to do so. The system generates stability, credibility and a combination of professional/self-management of account activity. Therein is its strength.

The integration of BMO online banking with SmartFolio’s wide range of automated actions is certainly reaping dividends. Multiple ETFs can be traded, accessed and managed via the BMO Global Asset Management System with SmartFolio. For the first $100,000 in asset value, the annual rate is just 0.70%. Any amount over $500,000 is billed at an incremental annual rate of 0.40%.

Multiple types of accounts are available, including tax-free savings accounts, joint investment accounts, registered retirement income funds, investment accounts, and registered retirement savings plans etc. The Robo advisor style platform is user-friendly, stable, and adaptive to changing technological constraints. Overall, Canadians are taking to it in their droves, and other banks are exploring ways to introduce similar technology to their clients.

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By Chew Hock Beng

It may sound bizarre but the first step to making a profit in the stock market is to accept making a loss. Not a real loss, but what’s called a paper-loss i.e. mark-to-market valuation showing losses. This means that you must expect any investment you make to go down over the short-medium period, but in the long term it will very likely generate a profit. All this is not just some fancy theory, but based on what is commonly observed and involves investors’ psychology.

You may do a great amount of research work and put in hours to come up with an investment strategy and the investment-based financial planner whom you engaged may offer you the best investment advice. While this is good discipline, the reality is it by no means guaranteed success.

long-term-investingMaking sustainable profits from investment depends on endless factors, some predictable and others totally unforeseen. So, how do you ensure a good investment growth over long-term?

When you make an investment, you should be prepared not to expect any positive returns for the short to medium term. In such a case of uncertainty, expectation is what is considered the most likely to happen. Expectation is a belief centered to the future and it might or might not happen. More often than not, investors tend to feel disappointed when they do not expect the unexpected.

So expecting loss before gain will go a long way. Investors have to accept the fact that 99.9% of the time they will be unable to pick the bottom of market. But to ensure the odds are in their favor, investors must obtain good advice and acquire time. According to Newton’s law of gravity, what goes up must come down, what goes down must come up (except for one’s age!).

Expecting loss is an important psychological step to cross a bear market, when things are less rosy and negative market sentiment overrule. Bull markets can sometimes send you the wrong signals and lead you to think that the markets will never disappoint you. And, often investors get into without asking the right questions hoping to make quick profits. Then psychological expectations grow out of proportion and greed gets the better of them.

Investors would end up holding onto investment assets but with increasing and unnecessary risks. And when the markets crash without warning, it may be too late to exit (The Lehman Brothers) without getting burnt. One way is to adopt the “ERP” approach when various investment opportunities are evaluated. As an intelligent and informed investor you should not only be motivated by (P)erformances, but also be aware of taking calculated (R)isks and the cost of maintaining the investment or the (E)xpenses incurred.

Buying into an overly bullish market is clearly not based on taking calculated risks. On the other hand, when the market is more bearish, you could be able to identify the potential value in the capital market. Due to the less optimistic investing environment, you need to adopt a more practical return growth path and accept more realistic returns.

Your main focus is on the recovery and how you can ride on it. What we want is the return and not to be stuck with those funds that is not performing. Hence, the most important strategy is to buy only fundamentally sound diversified investments across asset classes, geographical regions and funds of reputable fund managers with strong investment ratings.

Getting over a negative state of mind through loss expectation is very important in a bear market. You should hold on to fundamentally strong investment assets on a long term basis and be prepared to take in the “paper loss” arising in the short term and mid term. Keep in mind, successful investors are in control of their emotions and are more likely to act on facts as opposed to feelings.

Patience and perseverance are two essential traits during a bearish market. If you are able to handle losses emotionally and come out of it, you would have more flexibility and adaptability to handle future uncertainty better. Even the best investment selection system would lose money if you do not have the right attitude, so develop a positive one. Always have a long term view, this is a sound investment strategy and has been proven to be successful towards building and preserving your core wealth.

So be prepared and expect incurring small loss to gain BIG profit!


I have the privilege to invite Mr Chew Hock Beng as guest speaker in my next seminar “How to Construct your investment retirement portfolio without losing sleep“. You sign up at the following link:


Chew Hock Beng is a Director in Financial Alliance. He is a Chartered Financial Consultant (ChFC), Certified Life Underwriter (CLU), Certified Financial Planner (CFP) and holds a Bachelor of Engineering from NTU. Hock Beng entered the Financial Services industry upon graduation from NTU and has since received numerous accolades and achievements in the industry. He believes in adopting a balanced approach to carry out the financial touch together with his client to move away from the path of financial darkness and achieve Financial Enlightenment. He is inspired to keep things simple and ensure the delivery of sound and effective advice from someone who cares.