Robo Advisor in Pre-Trade Stage


< Figure 1: Asset Allocation Advised by Robo-Advisor >
Nowadays Robo-Advisory system (Robo Advisor) is also available in the pre-trade stage. The idea of Robo-Advisory is to apply sophisticated statistical models or machine learning algorithms with big data technology and other investment-related information to provide an investment suggestion or strategy to either the investors or RM.

Before the Robo Advisor conducts its analysis, investors have to define their investment strategy, goal, risk undertaken, and other investment preferences, such as products, duration, market, etc. Then they have to select and personalize a model portfolio. Then the Robo Advisor will calculate the asset allocation that meets all the investment requirements of the investors.



< Figure 2: Robo Advisory Strategies >

There are two main streams of investment strategies which are risk-based strategy and goal-based strategy. The risk-based strategy picks a model that is suitable for the customer based on the risk the customer is willing to take. The goal-based strategy picks a model based on the rate of return required to meet the goal defined by the investors.



< Figure 3: Rebalancing in Robo-Advisory >

After a certain period, the market price may change, and investors’ investment requirements may also change. The Robo Advisor will re-calculation the asset allocation of investors’ portfolios and generate the buy/sell order to attain the recommended portfolios. This process is referred to as Rebalancing.


One of the Robo-Advisory solutions is COMPASS Robo-Advisory Engine from Axisoft. The engine provides the modeling capability for various investment models so banks could launch new advisory services rapidly.



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