Robo-advisors have been heralded as the “future of investing” by their fans, but can computer algorithms really replace human financial advisors?
Robo-advisors are less expensive than traditional advisors—but their low, up-front price comes with a loss in quality. Robo-advisors lack an irreplaceable human element, which prevents them from providing the essential qualities and services characteristic of traditional financial advisors. When you look more closely at the differences between the two, it seems obvious that robo-advisors could never truly replace human financial advisors.
How do robo-advisors work?
Robo-advisors are low-cost, digital platforms that use automated algorithms to provide investment advice. Investors fill out an online form detailing their current financial situation, monetary goals, and investing preferences. Then, the robo-advisor software analyzes the responses and dispenses investment advice.
A recent study by LendEDU found that Millennials, once believed to be the biggest proponents of robo-advisors, actually chose human advisors nearly two-to-one over automated investment services. Other findings from the study revealed that 52% of Millennials believed that robo-advisors are more likely to make mistakes, and nearly 70% thought a human advisor would get a better return on their investments.
Here are 3 reasons why human financial advisors provide more value than robo-advisors.
1 – Money is an Emotional Matter
When you compare a robo-advisor to a human financial advisor, one of the key differences is a human advisor’s ability to offer emotional guidance. Spending the time to truly understand our clients’ motivations, goals, and concerns allows us to provide behavioral coaching that ultimately helps to develop positive budgeting and wealth management habits that lead to long-term financial security. When markets decline or experience an upset human advisors have the unique ability to help folks make rational financial decisions and overcome detrimental emotions or impulses.
2 – Everyone has a Unique Financial Situation
Human financial advisors provide personalized counseling and guidance to help clients achieve long-term financial success. Automated online platforms are unable to match this level of service. Instead, robo-advisors rely solely on computerized algorithms to determine asset allocation. While traditional financial advisors may use similar strategies, we also rely on our professional experience, as we have worked with a variety of clients with unique financial situations. Additionally, we may work with a team or have additional financial tools at our disposal to determine the best investment objectives for each client.
3 – It’s About More Than Just Investments
Investment advice is just a small part of a complete financial plan. The most sophisticated robo-advisors may offer automatic portfolio rebalancing and tax-loss harvesting, but they don’t come close to providing the full range of services that human financial advisors offer. As people move through life, their priorities and financial goals evolve. Human financial advisors are able to create nuanced investment strategies that take into account changing life circumstances. We provide comprehensive financial planning that includes retirement, insurance, and estate planning services, and more to help our clients achieve their financial and life goals.
While robo-advisors are gaining more capabilities and media attention, they aren’t close to replacing human financial advisors. Robo-advisors may be useful for beginner investors with limited assets, but they lack the full range of benefits that would let them serve as true replacements for traditional, human financial advisors. If your finances could benefit from a personal touch, please contact us for a complimentary consultation.