Conventional financial advice since the dawn of mankind has always come from a real, live human being. Yet with technology changing the way we go about life in almost every way possible, robo-advisors — computer programs designed to invest your money — are a popular reality for investing and retirement savings.
Robo-investing services are growing fast, their big draw the ability to pair someone with a customized portfolio in a matter of minutes. Robo-advisors often boast lower fees and costs, just one reason to give human financial experts a run for their money (literally).
What you get with robo-advisor services is a portfolio assembled with your needs in mind, but with an algorithm at the wheel. Granted, those algorithms were built by, and are managed by, financial professionals. But it’s the computer intervention that allows you access to professional advice for so much less.
Advantages of a Robo Advisor
With a robo advisor, you typically receive much more limited financial services. Basic robo advising is just portfolio management. In most cases, robo advisors choose a professionally designed portfolio of low-cost exchange-traded funds (ETFs) that align with your investment goals. You won’t get one-on-one help. But you can rest easy that a team of pros — not just a single investment advisor — is working together to optimize a portfolio for you and potentially thousands of other investors with similar goals.
Because robo advisors spread out portfolio management costs over many customers and require less human interaction, the costs are often far lower. You get a lower level of service, but you may be able to save a bundle. And even a small difference in cost can add up to a huge difference for your portfolio over the years.
Potential drawback
There’s a lot of good in this model. “It’s democratized the investment management market,” says Will Trout, author of the new report, Looking Under the Hood: Robo Advice, Portfolio Risk, and Regulation. “You no longer need to have $5 million to get the attention of a market advisor—you can be a millennial with $10,000.” But you can also become a lemming at risk of marching off a cliff. “With these baskets of market-tracking instruments—as long as the markets keep going up—they’re good,” says Trout. “The question, then, is: What happens if you have a sufficient market crisis and these pots drop in value? How do the Robo-advisors keep their clients afloat, or prevent them from making rash moves with their money?”
-Excerpt from “Thebalance.com”, link to original article below
When a human advisor makes sense
Automated advisors have their advantages, and they’re improving their services all the time. Automated comes with lower costs, convenience and a “set it and forget it” method that works for many people.
But there are times when a human advisor is the better choice.
- Robots are only as good as the humans who developed them. Robo-advisors were programmed by humans who developed the technology, so they may be limited in what they can do. For example, though many are experienced in handling and managing retirement accounts, when it comes to 401(k)s or 403(b)s, it may be time to defer to a live advisor over its robotic equal.
- Humans can answer questions and offer advice. Robo-advisors may be astute in giving recommendations based on the information you give it, but sometimes, a face-to-face, person-to-person interaction with a real-life professional can do so much more for investors. A human advisor can answer questions on market conditions and get a clear view of your finances, in your words. “Having a licensed, human advisor can add great additional value such as overseeing your portfolio and understanding your story,” says personal wealth manager Daniel Schutte. “A robot cannot answer specific answers unique to your situation.”
- Human advisors get the big picture. Robo-advisors use the most sophisticated software to automate your investments accurately, sometimes to a fault — the perfect vehicle for many people interesting in leveraging technology with their finances. But Robo-advisors can’t advise as well as a human advisor with experience and perspective. “Personal finances are just that, personal,” says CFP Russ Blahetka. “The (robot-advisor) sees an account as a bunch of numbers and holdings. What we see behind each account is a person, or a couple, or a family. We never lose sight that it is about people.”
For more information, visit this website:
https://www.thebalance.com/how-your-robo-advisor-could-steer-you-wrong-4153545
https://investorjunkie.com/robo-advisors/robo-advisors-vs-financial-advisors/
https://www.moneyunder30.com/roboadvisors-vs-financial-advisors
https://www.mybanktracker.com/blog/retirement/live-financial-advisor-vs-robo-advisor-274632
