Robo advisors are gaining traction because investors are looking for reliable wealth managers backed by algorithms, at a reasonable price.
Building one affords multiple benefits for your business, such as less work for human advisors while increasing your customer base. But starting one is a delicate process.
Since we have experience building B2B Robo advisors, in this article, we’ll share a step-by-step guide on how you can build one.
30 Seconds Summary: What Is a Robo Advisor?
A Robo advisor is a platform that uses an automated algorithm, backed by artificial intelligence and machine learning, to provide investment services and financial guidance to customers.
Users can create personalized portfolios on Robo advisors based on their risk tolerance and financial goals. They also enjoy automated features such as rebalancing, tax management, and financial planning.
5-Step Guide for Starting a Robo Advisor for Your Business
Starting a Robo advisor is more than just having the right technology. There’s a lot you need to do to acquire clients, build trust, establish credibility in your algorithm, and maintain a standard of service.
Here’s a quick guide on how to start a Robo advisor website or application for your business:
1. Know Your Clients
If you’re a financial advisor or an institution that offers advisory and portfolio management services, then you’d already have demographic data of your clientele.
You must compile that and decide who your Robo advisor will target.
If you don’t have this information, you should create user personas to determine if your customers will be organizations or individuals, then work out if they’re beginner investors or advanced/ experienced.
Portfolio categorization will depend on the people who’ll be using your services. It impacts your entire product design, from asset allocation classes to risk tolerance and even the look and feel of the website you’ll design later.
Knowing your customers, their needs, and their level of financial literacy will also help you develop one of the most important parts of a Robo advisor: the onboarding questionnaire. The language you choose for it, the questions you include, its length, and details are all based on the target audience.
2. Organise Your Offerings
Next, you should decide what you want to include in your Robo advisor services. The options include financial planning, diversification, rebalancing, portfolio management, accounts & tax wrappers, and so on.
You should also figure out the level of automation you’d offer and your service model (which can be fully automated or hybrid, involving a human financial advisor). Then finalize the investment options such as ETFs, mutual funds, bonds, and cryptocurrencies.
You need to do extensive research into establishing proper protocols for rebalancing, portfolio management, and all your services. Doing a subpar job here can result in significant losses for your clients, so take your time during this step.
For instance, rebalancing portfolios too often can result in your clients having to make unnecessary trades and incur associated taxes.
So you need to know exactly how and when to do various things to feed the same information to your automation algorithm.
Also, depending on the features of your Robo advisor, you might need to connect with a bank. So work on establishing that partnership in this step if you don’t already have a bank associated with your services.
3. Sort the Legal Affairs
You must have all your legal bases covered before launching your Robo advisor. Since this process can take a while, it’s best to start it as soon as you’ve decided what your Robo advisor offers.
The legal affairs include:
- Having insurance
- FSCS coverage
- Regulatory reporting MIFIR suitability
- AML (fraud monitoring)
- Tax reporting FATCA compliance
- Country-specific CGT reporting compliance
- And more depending on your services and geographical locations.
You might need to hire an attorney who can explain the process and guide you through the steps of acquiring each certification.
You should also consider having a legal team on retainer for the long term. Many of these registrations need to be updated regularly, and new issues could arise, which might get hectic to manage.
We don’t need to tell you how important it is to comply with the regulations applied to financial institutions and their products. That’s why you should gather all the necessary credentials before launching the Robo advisor.
Pro tip: Create a spreadsheet with all of your offerings and the required certifications/ credentials next to it. It’ll help you keep track of all the necessary legal paperwork you need to have.
4. Hire a Web and App Development Team
Since you’re essentially replacing a human financial advisor with an automated tool, your website development process will get incredibly sophisticated. That’s why you need an experienced team skilled enough to take on a project of this magnitude.
This step will likely be your second most costly step, second only to the legal fees and insurance.
Begin with designing a wireframe and welcome your dev team’s input. If you want to save time later, make sure that you discuss all the specifications you require before the development starts.
For example, if you need an excellent user interface with main functions just 2-3 clicks away from the home screen, then communicate that to your web developers so they design the Robo advisor accordingly because the fewer revisions you have, the quicker you can launch your Robo advisor.
In this step, you’ll figure out:
- The fields/tabs you need based on your offerings
- The pop-ups (such as questionnaires) for different functions
- The web development framework and programming language that’s best suited for a high performance
- The hosting for your website and apps
- The automation algorithm
- Push notifications
- Easy access to transaction history
- APIs that connect to the client’s bank account
- Other APIs such as capital management API and wealth management API
Your automation software algorithm needs to be fed accurate historical data to make good investment recommendations. So provide that to your development team instead of having them outsource it and basing the algorithm on generalized findings.
Things like the authenticity of the data impact the quality of personalized recommendations that your Robo advisor will offer your customers.
You should have at least one developer as a full-time team member to fix bugs on your website and app and make modifications you’ll need as you get user feedback.
5. Refine Your Brand
Every Robo advisor currently on the market claims to be the best.
So you need to differentiate yourself by having dynamic asset allocation, offering unique personalized recommendations, designing a user-friendly website, and constantly improving your services by adding new features.
Also, you should establish a brand around the Robo advisor to increase credibility.
Developing a Robo advisor, although not easy, is still something a lot of people and institutions can do. But to start one and keep it going requires the support of your customers and capital, which comes through branding.
A Better Alternative: Choose a White-Label Investment Solution to Start Your Robo Advisor
Developing the algorithm for a sophisticated Robo advisor can get complicated, as you can probably tell from the points above.
That’s why using the backend of a while-label investment solution to create your Robo advisor is a smart decision. It’ll help you avoid dealing with regulations, legalities, and design features from scratch.
It’ll also be good for your existing customers because they won’t have to undergo an additional onboarding process if you integrate the Robo advisor into your current portal through APIs. You can even match your current website or app’s front end to your Robo advisor website.
Licensing a while-label investment solution’s algorithm doesn’t mean you have limited customization options.
With us, you can pick your asset classes, currencies, instruments, portfolio creation options, and portfolio categories and deselect the options you don’t want to include.
That way, you’ll have a free-standing, self-branded Robo-Advisor without spending months developing and incurring high legal costs. Since white-label investment solutions often require regulatory permissions, you can have your website market-ready much quicker than the timeline if you start a Robo advisor from scratch.
Your Robo advisor needs to offer enough value to encourage your clients to switch from traditional financial advisors to your platform. Although you can build one from scratch, it can get incredibly costly and time-consuming.
FinTech is growing in popularity, and customers are looking for quick solutions from credible institutions. Hence, now is the time to enter this market and expand your business through a Robo advisor platform.
If you work with our B2B Robo advisor service, you can launch apps on all operating systems and a high-functioning website.
Moreover, the ETFmatic/Aion license can be passported in 32 European countries, which is ideal for quickly expanding your business in multiple countries.