While robo-advisors are becoming popular due to being less pricey than traditional financial advisors, they lack the human touch which most of us need from a service. Traditional financial advisors have some inherent human attributes and decision-making skills, which robo-advisors cannot offer.
Investors fill online forms that require certain information such as their financial income, investment goals, and preferred investment options. The robo-advisory software uses this information to offer investment advice.
Robo advisors vs financial advisors
For most of us, money is an emotional matter. Since everyone has a unique financial situation, human financial advisors can offer customized advice and counsel to help investors achieve efficient portfolio management.
Meeting financial advisors in person offers a personal touch in investment advice and support. For example, when global economy or markets experience an unforeseen event, financial advisors can react quickly and work with their clients to adjust to the situation and make suitable financial decisions according to the circumstances.
Investment advice is part of a financial package, which involves more than just investments. While robo-advisors are exceptional at automatic portfolio rebalancing and tax-loss planning, they cannot offer all the services that human advisors offer. They also do not account for the shifting priorities and goals that most of us have.
Although robo-advisors offer goal-oriented financial advice, they cannot provide financial advice that tailor to complicated situations as artificial intelligence algorithms are not highly sophisticated just yet. Human advisors use experience and professional skills to offer suggestions that suit unique financial scenarios. Additionally, a human financial advisor also encourages a long-term working relationship between the relationship manager and the client.
The bottom line is that robo-advisors can offer the fundamentals of investing. Their low costs can be a plus during the initial phases of the investment process. However, long term investors may find it more beneficial to opt for a financial advisor to manage more complex portfolios.
Creating a balance between a robo advisor and a financial advisor
The standard robo-advisor was designed to make passive investing plans using low-cost funds linked to a preplanned mix of stocks, such as the S&P 500 index. Instead of trying to outperform the market—which is difficult—robo-advisors just focus on matching market gains over time.
Robo-advisors are good at essential portfolio management as they trade assets and automatically rebalance a portfolio accordingly. They however cannot help investors diagnose financial issues and identify areas of improvements. Financial advisors provide a more holistic approach taking into account the other aspects of an investor’s financials such as purchasing property, considering a career change or starting a business.
If an investor has budgeting and financial planning aspects figured out, robo advisory based services would work well. However, if detailed advice on financial management is needed, a financial advisor would be more suitable in providing tailor-made investment solutions and strategies according to an investor’s need.
Robo advisory services can always be complemented with that of a financial advisor as it provides investors with a more thorough and wholesome services. Financial institutions can always offer this at an added cost or fee suitable to the level of advice interaction provided to a client.
It is time that the benefits of the two are merged to offer a valuable and reliable experience to investors.