Chartered Institute For Securities And Investment (CISI) Level 3 Practice Exam

Which statement best describes robo advice?

Advice provided by a human adviser using modern technology. A discretionary investment service guided by a financial planner. The application of technology to provide financial advice without a financial adviser, usually focused on index funds and ETFs. A form of advice limited to high-net-worth clients.

Correct Answer:

The application of technology to provide financial advice without a financial adviser, usually focused on index funds and ETFs.

Explanation:

Robo advice is technology-driven investment guidance provided without a human financial adviser. It relies on automated algorithms to assess your goals and risk tolerance, then selects and manages a diversified portfolio—often using low-cost index funds or ETFs—with automated rebalancing and sometimes tax considerations. This description fits best because it captures the essence of automated, adviser-free guidance and the typical use of index funds or ETFs to build simple, low-cost portfolios. The other statements imply a human planner or discretionary management, or suggest it’s limited to high-net-worth clients, which do not describe robo advice accurately.

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