Not a week goes by that we don’t hear about a Silicon Valley tech company launching a new product that’s designed to replace humans.
From self-driving cars to robotic bricklayers to Artificial Intelligence (AI)-powered digital assistants, it seems that in more and more areas a computer-based algorithm can purportedly do the work of a person.
Several years ago, a number of financial service startups developed sophisticated programs that were designed to replace human financial advisors. A client could log into a web platform, answer a few questions, and minutes later have a customized asset allocation plan for their investment strategy. As the first adventurous investors moved their assets to these sites, the financial media was abuzz with stories about how the new “robo-advisors” would someday replace the human ones.
But after a promising start, things didn’t work out the way these platforms and their investors had hoped for.
Not Meeting Growth Projections
According to financial writer Michael Kitces, the robo revolution appeared to be on track to capture a significant portion of the investing marketplace, but then failed to grow as predicted. Over the past four years, highly publicized companies like Wealthfront and Betterment have attracted about $25 billion in assets. Certainly not pocket change. But Kitces points out that this figure represents .06% (six hundredths of one percent) of the market’s total investable assets.
He says that we’re past the question of whether or not robo-advisors are going to replace humans. They’re not.
Additionally, Wired recently reported that the major robo sites are moving away from the algorithm-only investing model. Betterment is now offering human advisors (for an increased fee). And Wealthfront is now moving a portion of all invested assets into an actively managed derivative fund (also with higher fees).
They’ve now learned what prudent investors have known all along about the role of an independent, personally-engaged advisor.
Why You Need A Person To Help You
One of the goals of the robo-advisor companies was to shave investing costs as low as possible while still giving passive investors the best investment mix a computer could devise.
While efficiency is generally good, what the robo advocates ignored is the historical evidence that it’s the behavior of the investor rather than the precision of the asset allocation that has the biggest effect on long-term performance.
What an automated “advisor” can’t offer is the expert human component investors actually need most: someone who can advise them about what to do at the major decision points in life. Equally as important, they need a person who can encourage them not to abandon their long-term investment plan when their emotions are telling them to “do something” in response to volatile swings in the market.
It’s the same reason even the most sophisticated training app cannot replace a good coach.
The Positive Effect Of The Robo Revolution
The advancements in digital asset allocation, complex reporting, and other “back office” functions have made it possible for human advisors to serve their clients more efficiently and effectively than ever. This new technology is enabling them and their staff to spend more of their time where it counts most – engaging with clients.
Automated technology is great for things like vacuuming your rug or finding the cheapest airfare. But for something as critical as your retirement, the help of an experienced, trusted advisor is your best choice. We can help.