In Artificial intelligence world, There is a new item appeared “Digital Advisor” which is a combination of robot-advisor and a traditional financial planner that makes personal advisor accessible to every client via chat or phone. Here, we will explain some features of digital advisor.
It is important to differentiate between digital advisor components, So if you want to make this, You should compare between them by these features:
Customization Based on the information provided by the client, digital advisors will select the asset allocation mix for the individual and provide more customization or bespoke solutions.
Tax Management Some digital advisors offer tax management tax-efficient asset placement and tax loss harvesting, while others do not.
Human Intervention / Oversight it is able to help human advisors more effectively provide advice and automate routine processes. it should have reasonable supervision and control programs that are designed to prevent failures and undesirable consequences.
Type of Entity Providing Digital Advice the digital advisory business has grown at a rapid pace. Nearly 140 digital advisory companies have been founded since 2008, with over 80 of those found in the past two years.
Digital Advisor Methodology
The digital advisor follows some steps:
- Asset class selection the first step of methodologies that o select asset classes that have the desired risk and return characteristics.
- Investment vehicle selection the second step that to identify the most appropriate investment vehicles
to represent each selected asset class.
- Constructing optimal portfolios the third step that includes international asset classes to globally diversify their portfolios
- Risk tolerance assessment is the degree of variability in investment returns that an investor is willing to withstand.
- Ongoing portfolio management that is an investment portfolio in stocks, fixed income, debt, cash, structured products, and other individual securities.
Investment Goal and Portfolio Sets
investors can choose from among these goals:
- Prepare for retirement.
- Save for major upcoming expenses (education, healthcare bills, etc.).
- Save for something special (vacation, new car, etc.).
- Build a rainy day fund for emergencies.
- Generate income for expenses.
- Build long-term wealth.
And it has many models such as:
- Asset Allocation Models.
- Mean-Variance (MV) Model.
- Capital Asset Pricing Model (CAPM).
- Black-Litterman (BL) Model.
- Downside Risk Minimization (DRM).
- Full-Scale Optimization (FSO).