With the rise of popular robo-advisor platforms like Wealthfront and Betterment that provide automated, low-cost investment management services, many people may wonder if the age of financial advice from actual humans is already dead or on it’s way out. However, this is simply not the case, according to LendEDU, a Delaware-based start-up in the student loan refinancing business. They polled 502 millennials actively saving for retirement and asked them about their use of a traditional robo-advisor vs financial advisor. The results determined that “traditional advisors are nearly two times more prevalent amongst millennials than robo-advisors,” despite the typically higher fees associated with traditional financial advisors. We believe part of what draws Millennials to prefer to work with human advisors is the process of financial planning. A human advisor can help clients prioritize and track their goals, and adapt as their lives change. This inherently builds a relationship that extends beyond just the nuts and bolts of investing. The following are four reasons we believe traditional advisors have an edge over robo-advisors in the robo-advisor vs financial advisor debate.
Emotions may be the single most defining aspect of humanity, as a life without emotion carries no substance or meaning beyond its stark physical existence. This is by no means an attempt to wax poetic or delve into some deep philosophical discussion, but it is meant to convey the power and influence our emotions have on our everyday decisions, especially our financial ones. The truth is, we each have an inherently emotional relationship with our money. Have you ever been broke? Have you ever experienced a windfall of cash? Think back to the emotional response you had to these events and the decisions those emotions spurred you to make. Were they rational? This is where a traditional financial advisor truly takes the cake over a robo-advisor. A robo- advisor only has one job – use its algorithms to manage your investment portfolio. They are not designed to manage the emotional component of investing and building wealth. For a traditional advisor, this is a daily role they fulfill. When markets decline or clients experience an important financial event, the traditional advisor is there to talk them down off the proverbial ledge and help them make a rational decision void of strong emotions.
“Accountability is the glue that ties commitment to results.” This Bob Proctor quote does a great job summing up the importance of accountability in one sentence. Without accountability, results are difficult to come by. Certainly, many people are capable of holding themselves accountable on their own, but having someone else committed to helping you in the endeavor only ups your chances of success. In terms of achieving your financial goals, the traditional advisor yet again wins the race. Computers are certainly capable of creating tasks and sending you reminders, but they have little to no flexibility in helping you devise an accountability system that truly works for you and is tailored towards your specific goals.
Let’s face it, over time, our lives can change quite drastically. We inherit money, we lose a job, we buy a house, we have kids. The list goes on and on. Each of these events creates what we call “money in motion.” When money is in motion, planning, adjusting, and taking thoughtful action needs to occur in order to ensure a positive outcome. Over time, many discussions are required during this process, and having a human expert helps you adjust and adapt as needed. And can make all the difference in the world in your success. Robo advisors, on the other hand, operate solely on algorithms, making them inherently less flexible.
One Size Fits All vs Tailored Service
Part of why robo-advisors are cheap, relative to financial advisors, is due to the fact that they are a streamlined, automated service. As great as this can be, it also creates a lot of limitations. Rather than being built and catered specifically to you and your current financial situation, robo-advisors are designed to serve the masses. This means a somewhat cookie-cutter, one-size-fits-all approach in their offerings. Traditional advisor, on the other hand, can tailor the services and investment management style they provide according to your unique financial situation.
In our point of view, the robo-advisor vs financial advisor debate will never be settled. Robo’s provide a service to a select group of clients and financial advisors another group based on their respective preferences.
For questions or help in determining whether a robo advisor or human advisor is best for you, schedule a free consultation with us today.