When it comes to the robo-advisor (ROBO) versus human-financial advisor debate, the choice is not a zero-sum game. Nor is it a winner-take-all proposition. While ROBOs are helping to fill a void among small account balances in the wealth management space, human advisors retain the advantage when it comes to creating total financial integration for clients.
The distinction between a digital and human advisor is being shaped by a marketing-driven “Man vs. Machine” debate that is simply the wrong conversation. Each has their own advantages and requires the same due diligence when choosing a platform.
By definition, ROBOs provide digital financial advice based on mathematical rules or algorithms that are devoid of emotion and virtually any human intervention. As might be expected, these self-guided investment platforms are less expensive. The bullish case for ROBOs is this: their algorithms, net of fees, will do a better job than human advisors in asset allocations and managing client assets.
In contrast, human advisors possess the ability to evaluate the full range of variables influencing investments. This is especially evident in times of heightened volatility when emotions are tempting clients to do the exact opposite.
While ROBOs are helping fill a void that many asset management firms find unprofitable, non-ROBO advisors have an expanded investment universe from which to work, including traditional and non-traditional investments. In turn, asset management firms gain and maintain the ability to connect and communicate with their clients.
While it’s true a ROBO advisor is void of emotion, since the software cannot be influenced by greed and fear, it does require a participant to have complete and total faith in the algorithm-based program. This unwavering confidence in a software program can be tested in times of heightened volatility.
In contrast, human advisors have one tremendous advantage over a ROBO – the ability to create total financial integration for their client. A properly credentialed and experienced advisor can assess variables that extend far beyond asset allocation and portfolio rebalancing. Pertinent examples include an upcoming tax code change, a pending business sale, a short-term deficiency in cash flow, a concentrated investment, a change in employment or marital status, and the dovetailing of a 401(k) plan into an overall investment strategy, to name a few.
When considering a ROBO, the bottom line is this: price is not by any means the only key variable for choosing the right advisor. Asset levels, complexity and the need for human interaction are also strong considerations. Of course, it is imperative to be mindful that ROBO and human advisors are not necessarily mutually exclusive.
About the Author
James Ferrare is managing principal of Withum Wealth Management and principal of Withum’s sub-investment advisor, Pinnacle Associates Ltd.
To access more business news, visit NJB News Now.
Related Articles: