How does a robo-advisor operate?

A robo-advisor operates as an automated platform that delivers financial services driven by algorithms. This model primarily relies on technology to manage investments, analyze individual client data, and create personalized portfolios based on risk tolerance and financial goals. The automation allows for lower fees and quicker adjustments to investment strategies, making it accessible to a broader range of investors compared to traditional advising methods.

The approach focuses heavily on data-driven decision making, minimizing human intervention in the investment process. Clients typically answer a questionnaire about their financial situation and objectives, and then the robo-advisor utilizes that information to construct and manage a diversified investment portfolio. This efficiency and reliance on technology distinguish robo-advisors from traditional investment management, which often involves more manual oversight and human judgment.