Robo-Advisor: Your New Wealth Manager

Zachary Okun is a Junior Financial Analyst at I Know First.


Robo Advisor

The days of walking into your bank and speaking with your wealth management advisor may be gone. The hottest thing in FinTech these days is Robo-Advisors. Essentially, they are the same as the traditional advisor, but available at your convenience on any web based device. Robo-Advisors run by an automated system with no human intervention using algorithm-based strategies. This shift has put Wall Street and other big banks on the hot seat to adapt or come out with something new.

Digital products are changing the ways of life and making things easier for individuals. Increasingly, more and more millennials are shifting to digital experiences when it comes to finance. This idea is gaining a lot of traction towards consumers, as well as innovators trying to create a new product.


Banks are responding in a number of ways. Some are taking the approach to build up their existing web-based capabilities, such as Bank of America. “We are constantly looking for ways to make the financial lives of our clients better” said Aron Levine, head of Merrill Edge of BofA. Others are attacking the issue through M&A. Groups like Goldman Sachs and Blackrock bought startups to help them with this pressing issue. Last year Honest Dollar and FutureAdvisor were acquired.

Robo-Advising seems like a new idea, but really it isn’t. The traditional model uses this system as well. They input the information given by the client into a computer system and its helps them automate the best investment strategies. Within these large financial institutions, the people feeling the most heat are wealth management managers. If their clients feel they are underperforming, they may make the switch to an automated option.


Traditional advisors and Robo-Advisors both use an algorithmic-based approach investing. Algorithms are clear set of procedures, and problem solvers, done by computers.  These algorithms use theories, like Modern Portfolio Theory (MPT), a hypothesis by Harry Markowitz to create a portfolio that is risk-averse, and Efficient Market Hypothesis (EMH), a theory which states it’s impossible “to beat the market”. The goal of all of these is to maximize returns, with minimized risks and reduce variability.

I Know First’s algorithm based on artificial intelligence and machine learning. An algorithm is a set of instructions made for a computer to execute, and artificial intelligence is when the computer system learns to better its performance. The next step we are looking to explore is building an AI-Beta advising system. The main focus here is implement our successful algorithm, into an automated advising platform such as Robo-Advising. The new added component of the Robo-Advising system is to make our client’s lives easier when it comes to investing.

We feel that this will give us a competitive edge in Robo-Advising, because we already have successful portfolio options from our algorithm. At the same time, it will allow us to explore the option of an automatic investment tool.