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How the Robo Advisors Work, the Algorithms That Decide Your Investments


Automated portfolio managers use algorithms to decide where to invest your money. Its advantages are greater profitability and lower costs due to lower commissions. Today, we talk about it.

Would you let an algorithm decide how to invest your money? Would you trust a robot to guide your investments?

The number of people who do it in Spain is still limited, but it grows rapidly and with them the robbery advisors market.

Robo advisors are automated investment portfolio managers. In other words, these are highly automated systems that use algorithms to decide what you should invest in your money based on your risk profile.


The first robbery advisors began in the USA. after the last crisis around 2008 and it took eight years to reach Spain.

Nowadays they are a model of financial management on the rise. Between the names that sound in the Spanish panorama they are Indexa, Finizens, Popcoin of Bankinter or Sofia of Santander.

How a stealing advisor works

The ease of access to these financial services is one of the reasons for its success. In most cases you will not need more than ten minutes (and sign the documentation sent home) to sign up and start investing.

The process is simple and practical. "The client performs a 3-minute test where we outline the level of risk and from there Indexa takes care of the rest," explains Francois Derbaix, co-founder and co-CEO of Indexa Capital. That remainder is common to most managers and begins by creating your investment portfolio, or rather, assigning one of the pre-designed portfolios for each risk and objective profile.

This is where the robot starts to make way for people. "There is an important human part and that is where we can provide more value than an algorithm or a machine, and it is the preparation of the portfolios" they explain from Indexa, where an advisory committee with decades of experience in portfolio management is the one It is responsible for defining how, when and in what each will invest.

In Popcoin, the Analysis Department of Bankinter designs the fund letters according to the client's risk profile, according to Blanca Nuñez, Popcoin account manager. In this case, the technology allows for quick and secure contracting of the portfolios prepared by the bank's experts.

This human component is also responsible for monitoring the investment.

"We continuously monitor portfolios and rebalance them when their composition deviates significantly from the target portfolio to continue optimizing long-term profitability" · Derbaix points out. This rebalancing of positions is one of the keys for the indexed investment to work, since the simple evolution of the investments can cause that I change the weight of the investment and the risk of the portfolio.

To give an example, if a client has invested 60% in equities and 40% in fixed income and the stock market rises a lot, that percentage can become 70% and thus alter the composition and risk of the portfolio. The human component will be responsible for returning it to its original parameters.

What are the advantages of robber advisors?

Profitability and cost savings are the two great assets of automated managers.

From the studies of John Bogle with the results of investment, the passive versus the active investment, passing through the 2.6% of additional profitability of the Indexa portfolios compared to the Inverco portfolios in 2018, to the results of the automated Finan best manager, the data support the work of automated managers and indexed investment.

Even among the pension funds, only six Spaniards beat the Ibex in a period of 15 years and one of them is a pension fund indexed to the S & P of ING.

A good part of this profitability is achieved by reducing costs. "In Spain, investment in funds is mainly done through banks that recommend their own funds with high commissions and high margins. For example, with Indexa we estimate that our customers will save around 2.8% per year in costs and commissions, "explains Derbaix.

This savings is one of the keys to indexed management in general and is achieved by investing in products such as ETFs and index funds, with commissions that are smaller than the funds used. The reason is that being passive management products, the management fees are much lower - here you can see 4 parameters to know whether your gestures earn your commission or not.

Automatic portfolio managers also tend to be more transparent, basically because the online user demands clearer information. To this is added that "they democratize the ability to invest, since they allow small investors to access a service that until now was only available for large estates," says Blanca Núñez.

Most robber advisors allow access to their services from 1,000 euros and then make monthly contributions for very little capital. In fact, indexed investment works better in the long term and with periodic contributions to avoid falling into the trap of market timing.

For now, automated portfolio investment is starting and as Derbaix explains, "the business of asset management is a trustworthy business, and trust needs two ingredients: doing it right and letting time pass."