Is Your Robo-advisor Serving You Efficiently in The Current Market Conditions?
Oct 15, 2018

Author: PersonalFN Content & Research Team

Topsy-turvy stock markets separate the men from boys.

At present, there are many novice players in the financial services space. And most of them are seeing the market gyrations perhaps for the first time.

As you know, robo-advisors have proliferated in the recent past. Taking cues from the western markets, many tech-startups in India made a promising debut in the mutual fund advisory and distribution industry. They launched technologically well-equipped platforms at a time when the Indian mutual fund industry was having its dream run (between 2014 and 2017).

Unfortunately, many of robo-advisory platforms have focused too much on the 'touch and feel' aspects than on the quality of advice. Jittery market conditions are exposing their flaws now.

Like in the case of many robo-advisory platforms in the developed markets, robo-advisory platforms in India too seem to be struggling to garner enough Assets Under Management (AUM). Some of them are already gasping for fresh funds. Tech-startups backed by private equity players may soon struggle to justify their valuations. Consolidation in the industry looks imminent.

If you're thinking…

"But why should I bother about it?"

"I am just investing through them and not investing in them."

Dear reader, still you should bother about their survival.

Unless the platform is serious and capable of doing business in the long term, it will never be serious about giving you quality advice.

Why do you want to take a chance with your hard-earned money?

This is not to say that, tech-startups aren't ethical or all of them will cheat you. But if they are not competent enough to help you select winning mutual funds for your portfolio, then convenience in transacting wouldn't add any value.

[Read: How To Create A Portfolio Of The Best Mutual Funds With Robo-Investing ]

Therefore, before you invest with any robo-advisory platform you need to check:
  • Who are the people (founders/promoters) behind the robo-advisory platform and what's their experience in the field of personal finance—their investment ideologies?

  • What are the services they offer—whether only mutual fund related or a full-line, viz. financial planning and investment planning among others?

  • What is the technical competence of the team?

  • What are the processes and systems the robo-advisory platform follows to recommend mutual fund schemes?

  • What are the qualitative parameters used, if any?

  • Are they unbiased and independent, or working for commissions?

  • What is their track record?

Here are four criteria that a good robo-advisory platform fits:

  1. Service

    Some robo-platforms may offer you only transactional services, while others may provide you with a host of offline and online personal finance offerings.

    But in addition, a good robo-advisory platform should also have advanced tracking and portfolio rebalancing services.

    [Read: Unsure When To Review Your Mutual Fund Portfolio? Read This! ]

    Those that offer a mix of services should be worthy of your long-term financial commitment.

    Also, the platform should be backed by a team of experienced customer service associates.

    If you have any query related to the investments you do, or if you are facing issues when transacting, it should be resolved quickly and professionally.

  2. Unbiased and research-backed advice

    A robo-advisory platform backed by astute and comprehensive research processes will help you select the right mutual fund schemes. It plays a vital role; the fund's performance should not be the only criteria.

    A Robo-advisory platform that prudently selects best schemes for your portfolio backed by comprehensive research process and risk profiling is the right one for you.

    [Read: Why Robo Advisers Need To Put Your Interest First ]

  3. Established and reputed company

    As mentioned before, there is no dearth of robo-advisory platforms as the barrier to entry is low. While the competition is immense, you need to choose wisely and entrust your money to the best robo-advisor.

    In this milieu, small robo-advisory firms may find doing business unviable, could shut shop, and leave you in the lurch.

    Therefore, opt for a robo-advisor platform backed by established companies in the financial services space, who have been unbiased in their approach and serving investors diligently for decades.

    Robo-advisors should be fee-based to ensure that the commissions do not influence their advice; delivering sound and ethical research-backed investment recommendations is imperative.

  4. Costs

    Costs play a crucial role when you are planning your investments. Different robo-advisory platforms may charge you through one of the methods below:

    • An advisory or subscription fee (monthly, quarterly or yearly)

    • A transaction fee (each time you execute a transaction through them, they charge you a fee)

    • A percentage of the amount invested. (Popular in the US)

    • Commissions earned from fund houses of recommended funds

    While the first three forms are upfront one-time costs, watch out for the last option, as the advice here may be biased.

    You can always decide whether the subscription fee or transaction fee is worth your money depending on the quality of advice and services offered.

    Also, if you have a high quantum of assets, you can avoid investing with robo-advisors that charge you a percentage of your investment value as fees. The costs could end up higher than the one-time fees you would pay otherwise.

Does your existing robo-advisory platform satisfy the criteria?

If it doesn't; the time has come to find better alternatives.

Have you tried PersonalFN Direct?

'PersonalFN Direct' is promoted by PersonalFN —a service brand of Quantum Information Services (QIS).

At PersonalFN, we are committed to presenting informed views and opinions on various personal finance issues that can impact your investments and finances.

PersonalFN has offered investment recommendations to numerous individuals and has created customised financial plans helping them to accomplish their envisioned financial goals.

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Reason #1: It offers only DIRECT PLANS
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In the current market conditions, it would be advisable to invest via "Systematic Investment Plan (SIP) to mitigate the risk involved while you derive the full benefits of the mutual fund recommendations from PersonalFN Direct.

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Happy Investing!



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