'Robo-advisors' for a more inclusive financial system
Robo-advisors are becoming increasingly popular as a useful tool for making good financial decisions. The Colombian company Alkanza develops these automated services that use algorithms, artificial intelligence and machine learning to analyze millions of potential investments and provide users with the best options for ensuring profitability from the money they invest.
Alkanza, created by the Colombian Andrés Villaquirán, is a technology company dedicated to the diversification and strategic selection of its users' assets. This is how it works: the users define their goal, for example: buying a house, paying for their studies, ringfencing their money for their retirement.
Alkanza's systems then analyze the investment funds offered by the users' bank to achieve the widest possible diversification, and from there creates an investment portfolio.
In countries like the United States, Mexico and Brazil, where Alkanza is already more consolidated, the portfolio is automatically implemented –that is, after consultation with the user, the system automatically tells the bank which products the user should invest their money in. The service is still not totally automated in Colombia, as although Alkanza can identify opportunities, the users themselves must make the adjustment or rebalance their portfolio.
Andrés Villaquirán shares some tips about robo-advisors and their role in the fintech world.
What value do robo-advisors contribute to the financial ecosystem?
Using robots and algorithms allows you to offer very low-cost solutions for people who don't have abundant resources to invest. For banks, the cost of giving advice to people who do not have high investment capital is quite considerable, whereas with these automated systems the cost of support is significantly less.
What is needed for robo-advisors to be able to work to their maximum potential in countries like Colombia?
There are two challenges: on the one hand, smaller banks still don't have the technology to allow them to connect to robo-advisors. In the case of large companies, it's more a question of willingness. In countries like the United States, many banks have even created their own robo-advisors, so we should get ready to see an integrated ecosystem of financial technology in the future.
How do you gain the trust of a customer who looks to you to manage their money profitably?
The first thing is that we're regulated like any other financial institution. Another important point is that we don't have access to our customers' money –we only have access to be able to instruct the bank to invest the money in a particular product. Our servers connect directly with the bank's servers to tell them how to manage our customers' investment.
The key also lies in the reports that are regularly sent to the customers so they can see the state of their investments clearly and intuitively from any device.
We also pay attention to transparency. We inform the customers of the costs and fees from the start.
How is the customer´s information managed?
All the information is confidential. We work with blind algorithms, that is, they have access to the data to make the calculations, but they don't need to use the users' names or personal information.
How do you use the analytics derived from past investments to refine your algorithms?
As you get to know your customers better from the financial point of view, and you have algorithms that allow you to process this information with machine learning and artificial intelligence, you can offer them significantly better financial advice. Every day we revise our users' portfolios to analyze how they react to new market information, we assess over a million investment options to find the most suitable diversification. The idea is to make adjustments or rebalances that allow us to achieve the goal proposed by our customer.
What´s your business model?
Right now our business model is that we charge a percentage of the asset under management, but we're moving to a model where we can charge customers only when they make money, and we want to give them some return even when they don't make money. We believe that's the way it should be.
What questions should users ask when choosing robo-advisor?
In addition to choosing an intuitive platform, users should keep a close eye on the results of their portfolio management. The robo-advisor should allow them to track the results, everything should be transparent. That's what the customer deserves and what makes the difference. It's also important to look carefully at the experience and training of the people who are going to provide you with the service, and of course, to make sure the service is supervised by a regulatory body.