What are the best practices for diversifying your clients' portfolios with robo-advisory services?

The best practice for diversifying clients' portfolios with robo-advisory services starts with defining their goals and risk profiles. Utilize comprehensive questionnaires and assessments to understand clients' investment objectives, time horizons, and risk tolerance levels. Based on this information, robo-advisory algorithms can recommend diversified portfolios tailored to each client's unique needs, spreading investments across various asset classes and geographical regions to mitigate risk. Regularly review and update client profiles to ensure alignment with their evolving financial situations and market conditions. By prioritizing client-centric approaches and personalization.

Choosing the Right Robo-Advisor: Not all robo-advisors are created equal. Select one that offers a wide range of diversified investment options, including international equities, bonds, real estate, and potentially commodities or alternative investments, to ensure comprehensive global diversification.

With my clients, the only time we use robo-advisors is when we don’t understand a market to find the best performers. Robo-advisors are great for getting your toe in the water; never an end-all-be-all-be-all strategy or approach. My clients are generally too conservative to trust algorithms with any reasonable sustenance. Robo-advisors are great for research!

When diversifying clients' portfolios through robo-advisory services, it's essential to begin with a thorough understanding of clients' risk tolerance, financial goals, and current situation. Allocate assets across various classes using modern portfolio theory, ensuring alignment with clients' risk profiles. Diversify globally to mitigate specific country risks and across sectors within equities to reduce concentration risk. Regularly rebalance portfolios to maintain the desired asset allocation, considering cost-effective options and tax-efficient strategies like tax-loss harvesting. Periodically review and adjust portfolios while educating clients on diversification and long-term investing principles to align with their financial goals.

Once you know what segment you’re interested in, you are in a better position to find reasons to fall in love with a company. Assuming you can quickly define what a successful investment looks like, you can allocate accordingly. One man’s trash is another man’s treasure. Define your goals and don’t stray away from your convictions.

In my experience as an investor with a robo advisor, it’s important to check the asset classes the robo advisor is offering. Some robo advisors can provide exposure to only narrow list of asset classes while others will be broad based. The robo advisor mostly operate on risk based targets rather than return based targets. Every theme or asset class is managed passively through mostly ETFs. While it appears that the investor is managing the money passively, the investor can incorporate active bets as well on a theme or asset class. For eg: I wanted exposure to India because I believe it can provide higher returns due to India’s macro theme. This is an active bet for me but then the money is managed passively through an ETF.

Educate clients on robo-advisory fundamentals, outlining advantages, risks, and opportunities. Regularly communicate portfolio updates, performance changes, and adjustments. Solicit feedback to address concerns, fostering trust, loyalty, and satisfaction.