A lot has been written about the trend toward automated online investment platforms that rely on mathematical models and algorithms. Can robo advisors replace financial planners? I don’t think so. In the long-run, they can work together.
I believe that these platforms have a place in any investor’s portfolio. In fact, I believe that the underlying premise of them – low cost index investing, and portfolio allocations based on risk and goals – is a solid one based on established research.
This is why I have incorporated these platforms embracing the trend towards lower costs. If there’s one thing I’ve found after nearly 30 years as an investor or advisor, it’s this: Control what you can. What you can control is costs and the other thing you can control is having a disciplined investment plan.
Digital investment platforms offer this hands down often in a sleek user-friendly platform with a cool interface. But behind the pretty graphs and charts the reality is that creating a portfolio that is optimized to match an investor’s risk profile and follows the principles of Modern Portfolio Theory (MPT for short) is an effective way to manage investments and to lower portfolio risks.
Robo advisors can do this quickly and cheaply.
So why pay an air-breathing human financial planner to help you? Well, in short, the humans do what the robots can’t.
Investing is only one part of financial planning. These platforms will not easily replace a human advisor with experience – like me and my colleagues – who are asked about guidance on goals, taxes, budgeting, college funding or divorce.
So I don’t find these platforms to be a threat to me, my livelihood or my client’s needs. I think that these platforms can work to provide an overall, better experience to all clients because smart investing should be a part of smart planning to help people have better outcomes.
In fact, I’ve incorporated several different model portfolios and two digital platforms to help manage the investment side of the business. These combine the low-cost of index investing through Exchange Traded Funds and tactical asset allocation to further manage downside risk. And the costs are a fraction of what a client may otherwise pay using another Registered Investment Advisor or Big Box financial services firm’s higher-cost actively-managed mutual funds and wrap accounts (combined cost of more than 2%).
Bottom line is lower cost and more money in an investor’s account that will grow to help pay for those future dreams. That’s why my company motto is: Plan Well. Invest Smart. Live Better.
For more on why robo advisors can never truly replace traditional financial planning, check out this article posted at Investor Junkie.