Yes, these new tools are interesting and they can have merit, just be careful not to confuse a program that produces a blueprint with an architect. Pretending they aren’t there would be a breach of my fiduciary duty. You can’t take a client’s emotions out of the calculation as the algorithms try to do. Until the robo-advisor tools can listen, empathize, and course-correct for all that life throws at us, we’ll keep advising. When the going gets tough, you need a financial advisor, one you know, who has worked with you to create a goals-based financial plan built to channel and manage your emotions, so you stay grounded and on track. Memories are short and investor enthusiasm continues to push stock valuations ever higher. It will be interesting to watch what happens when the next recession rears its ugly head. These new robo-tools aren’t even as old as the last recession, so their short existence has only been during a steady bull market. My concern is that when the going gets tough, you can’t call an algorithm. In the halcyon days of the late 90's tech boom, clients were ready to abandon their plans to chase the next dot com IPO conversely, in the depths of the 2008 Great Recession, some investors wanted to sell everything and stuff their cash under a mattress. It’s been said that even the best battle plan goes straight out the window with the first shot fired, and in my experience, that’s generally how I’ve seen clients react. Each plan is as unique as the clients I sit with, but all with a common goal: to achieve their dreams and avoid their fears.Ĭan a computer truly understand human emotions? And at the risk of sounding like a Luddite, I’m just not buying it.įor the last quarter century, I have sat with clients across desks, at conference tables, and at kitchen tables, taking in their hopes, dreams, fears, and a multitude of nuanced behaviors in order to develop their financial roadmaps. This is my 25th year in financial services, so thinking about a computer program replacing what a human wealth advisor/financial planner tackles is something I take a particular interest in. Best of all, several firms are offering their robo-advisor tools for no or low cost. By allowing a calm, unemotional computer to allocate, monitor, and rebalance your portfolio, you should see superior results.
It goes like this: Individual investors, left to self-manage their investments, are often heavily influenced by emotion and that can be counter-productive to their success.
The value proposition for robo-advice is equally straightforward. The responses are interpreted by a computer algorithm to decipher the person’s risk tolerance, and abracadabra, you have your investment allocation.Īll that is left for the investor to do is fund the account and the computer will invest the money in accordance to the individual’s newly adopted allocation. The concept is relatively simple: Allow investors to avoid the complexities of asset allocation by answering 10 to 20 multiple choice questions on a website or app.
Bloomberg reports that robo-advisor services are expected to reach more than $435 billion by 2018.įor those who don’t have their face buried in Barron’s every Saturday morning, a quick recap of the robo-advisor model. In the financial industry, the 800-pound disruptive gorilla in the room is the so-called “robo-adviser.” Entire firms have emerged in the robo-advice space and they have been gathering investor dollars at a brisk pace. There are pros and cons to all of these developments - it all depends on your perspective. A lot of what I read lately sounds pretty exciting: self-driving cars, virtual assistants, and artificial intelligence, to name a few. It’s hard to pick up a financial periodical or visit a website these days without reading about all the new “disruptive” technologies that are emerging.
0 kommentar(er)
