Skip to main content

The truth about robo-advisors

The robots are coming—and it could be a very good thing for your finances 

In this era of artificial intelligence and augmented realities, the term “robot” might seem a bit retrograde. But don’t let the word fool you. Some of the most important innovations happening in the world right now are focused on robots. Even in the world of finance. But we’re not talking about the kind of robots that are always hassling Dr. Who, helping Luke blow up the Death Star, or learning to do parkour. We’re talking robo-advisors.

They represent one of the fastest-growing segments in the investment landscape; by the year 2022, the amount of money being managed by robo-advisors in Canada is expected to quintuple. That’s a lot of money (more than $14 Billion). So, what’s all the robo-fuss about? Well, the first thing you’ll need to figure out is: what is a robo-advisor anyways? Are they actual, real-life robots?

No, not really. A robo-advisor is a service entity that automatically recommends investment portfolios based on your goals, financial situation and risk appetite, which it determines by analyzing your answers to a specialized questionnaire.  

It typically works like this: you open an online account, you enter information about your personal financial goals, your financial situation and the level of risk you’re comfortable taking, and, using that information, the robo-advisor recommends a diversified portfolio that you can put your money into. As time passes, the robo-advisor will automatically rebalance and restructure your portfolio to keep it within the parameters you’ve set. Some robo-advisors will even use tactical asset allocation to adjust your portfolio, taking advantage of opportunities (or avoiding risks) as the market changes. 

The software that drives robo-advisors was originally created for professional investment advisors—a way for them to give better, faster advice to their clients. But then the robo-advisors gained sentience! (Not really—but the software did become available to individual investors, and evolved to be more user-friendly, more accessible, and has ultimately become an important resource for people looking to simplify and automate their investments.) 

Robo-advisors are popular because they’re (1) super-easy, (2) digital, and (3) generally have much lower fees than traditional investment management services. They’re a great no-hassle way to invest; you can quickly set up a diversified portfolio, access it easily online, and you don’t have to be engaged in the day-to-day management of your portfolio. Many investors incorporate robo-advisors into larger wealth management strategies that include some combination of advisor-led and self-directed investments.

For many med students and young physicians focused on their medical journeys, robo-advisors are an attractive option. When you’re busy studying for exams, or prepping for interviews, or searching for the perfect job, you don’t want to be stressing about the day-to-day ups-and-downs of your portfolio. Many financial institutions offer their own robo-advisor services—and that includes MD Financial Management. Not all robo-advisors are the same; MD ExO® Direct, MD’s robo-advisor solution, is built to cater specifically to the needs of Canadian physicians.

Robo-advisors might not be the robotic assistants all those 1950s sci-fi movies predicted—no flashing lights, claw-hands, and beeps and boops—but it turns out they are pretty good at keeping your finances in check so that you can focus on other important things—like getting your career started off on the right foot.   

* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.