Broker Check

What is Robo-Advising?

March 14, 2016

Staying away from high fees and excessive trading is a step in the right direction for investors, and the growing use of automated investment systems signal that many investors no longer want to pay higher fees for their investments and their investment advice. However, the investment phase, or the accumulation of wealth, is only part of an overall financial plan. A qualified advisor can more efficiently consolidate the many areas of financial planning that people need the most help in - including the growth, distribution, preservation, and protection of assets.

What is Robo–advising?

A robo-advisor is an online portfolio management service that provides automated, algorithm-based wealth management advice without the use of human financial planners.

What are the advantages of Robo-advising?

Users of automated systems have access to low-cost, well-diversified, passively managed investment vehicles such as open-ended mutual funds and Exchange Traded Funds (ETF’s). Automated systems will allocate investment portfolios based on responses to questions involving an intended time horizon for your investments and your level of risk tolerance. Also, not only will the costs of the investments probably be lower, but automated systems will not be encouraging you to speculate in the short-term on what direction the market is headed, or which securities will rise or fall. There is a great deal of evidence to support that speculating in the markets is a costly endeavor that doesn’t produce consistent market returns.

What are the disadvantages?

Although eliminating high fees and excessive trading are favorable outcomes for the investor, creating a plan to reach financial objectives involves more than identifying an appropriate investment time horizon. I believe that qualified financial advisor is more able to identify and quantify financial goals and then implementing the most effective strategy to reach those objectives. The road to reaching financial goals contain many obstacles, detours, and road blocks that only a qualified advisor can help with, including attention to tax implications, liquidity needs, distribution strategies, estate planning, and asset protection. The creation, implementation and monitoring a well-designed plan tailored to the unique needs of each client requires skills that I feel are not adequately accessible with automated strategies.

Is it Right for You?

Automated strategies can provide a low-cost alternative to investing in the capital markets. Whether it is suitable for your needs depends on the extent of other financial guidance you may be seeking. If the investment phase of the planning process is all you are interested in, then exploring robo-advising may be appropriate for you. But if you need more comprehensive planning, robo-advising may not provide the most efficient method. But the biggest problem investors will have with automated systems is the same problem they have with non-automated systems, and that is the lack of discipline to stay the course during inevitable market declines!

If you feel you need more guidance than what an automated investment system will provide, please contact me to take advantage of our no-charge initial consultation.