Robo-advisor: how does it work?

Deployed in the USA in the 2000s, robo-advisor technology is an online service created to help you manage your finances by targeting your needs, profile and investment desires. Not bad, eh? The robo-advisor service is based on an algorithm that automates the management of a financial portfolio. How does it work, and what does it do for you? Birdee tells you all about the magic of robo-advisor!

WHAT IS A ROBO-ADVISOR?

The next generation of savings and financial management is being carried out by a new breed of advisors: robo-advisors. Their main mission? To optimize the return on an investment according to the risk of the asset portfolio.

In other words, a robo-advisor is a kind of financial investment advisor, helping individuals to invest their money according to their risk profile, at lower cost and in line with market fluctuations.

Robo-advisors can have two different roles:

✅ Arbitrating all of a client's investments (a "gestion sous mandat") ;

✅ Advise customers according to their investment profile ("advised management").

In concrete terms, a robo-advisor will suggest an investment based on an investor's profile (according to their investment horizon or risk profile). While robo-advisors have the advantage of not letting themselves be influenced by feelings or lack of hindsight, these technologies do include a human eye, relying on the advice of experts in the field to support customers. In France, robo-advisors offer a hybrid model, between the use of algorithms and human advice.

🤖 In use since 2018, Birdee's robo-advisor was created by fintech Gambit Financial Solutions. What does it offer? Delegated management of a life insurance contract, a securities account, but also help in choosing an investment portfolio according to an investor profile.

HOW DOES A ROBO-ADVISOR WORK?

Setting up a profile using a questionnaire

The customer must first fill in a form and indicate :

- Identity (age, tax information, marital status)
- Current financial situation
- Investment objectives (type of investment, motivations and planned investment amounts)
- Risk tolerance (level of fluctuation accepted on investment).
- Investment horizon (how long the customer would like to invest in the short, medium or long term).

The robo-advisor will then analyze this data to develop the customer's investor profile, with a view to creating a relevant investment strategy.

💡 Birdee offers to invest in portfolios created and managed by its experts, who assess investor profiles according to several criteria. This is known as "discretionary management" (or "delegated asset management").

Investment proposal based on algorithm analysis

By analyzing the answers given in the form and using the algorithm, the robo-advisor will suggest an investment strategy in line with the customer's objectives.

How does it work? The robo-advisor estimates the investment best suited to the customer's profile. This may lead to the choice of an investment such as :

- Life insurance,
- short-term equity savings plan (PEA),
securities account,
- Plan d'Epargne Logement (PEL),
- long-term pension savings plan (PER).

Robo-advisors can also steer customers towards ETFs (Exchange Traded Funds), which are automated investment vehicles made up of stocks and bonds. An ETF replicates the performance of a stock market index.

As a reliable technology, the robo-advisor offers the reassurance of an investment choice designed to match the investor's profile as closely as possible. As an expert advisor, the Birdee robo-advisor is able to regularly optimize customers' investments to maximize and secure their returns.

👍 Birdee has defined 5 "typical" investor profiles: Dynamic, Protective, Stable, Moderate and Defensive. Each of these profiles is based on the risk perception and risk aversion of the investor client according to his or her own characteristics.

WHAT ARE THE ADVANTAGES OF USING ROBO-ADVISORS TO MANAGE YOUR FINANCES?

1. An economical option

A traditional wealth management service is very costly and is usually reserved for wealthy clients. This type of support can require several tens of thousands of euros in initial investment and up to 3% in fees invested each year to cover management costs.

Robo-advisors require a much more affordable initial investment, ranging from €300 to €1,000, and management fees of less than 1%. The costs associated with managing savings are considerably reduced, being between 3 and 5 times lower than those of traditional players. This cost reduction is caused by the automation of low value-added tasks, eliminating the need to pay salaries to automated advisors.

1. An advisor who is always present and responsive

Another advantage of robo-advisors is their flexibility. Unlike a human advisor, who is generally available during office hours, the robo-advisor is accessible 24/7. As a result, customers have direct access to their investments, enabling them to subscribe, deposit or withdraw an investment at any time, from anywhere. This permanent availability encourages more regular monitoring of investments!

          Simple, accessible help

Robo-advisors are accessible online via ergonomic, easy-to-use interfaces. Calculation and analysis capabilities are available to all. What's more, the quality of advice remains the same, regardless of the amount invested. The algorithms used to develop investment strategies are identical to those used by traditional financial advisors.

Robo-advisors are rational and do not give in to the emotions that can affect individual investors. In short, robo-advisors facilitate access to wealth management advice, whether for novice investors or those short on time.

🚀 Thanks to Birdee, make fund investments in just a few clicks. Register in just 15 minutes, answer 5 questions, select a project and an amount, and you're an investor!