Man vs. Machine

A recent article in the Wall Street Journal, “Robo Financial Advisers Can’t Coach”, discussed the evolution of robo-advisers and what they offer, and more importantly what they do not offer.  A robo-adviser is a new class of portfolio manager and financial planner that offers inexpensive management and planning services utilizing online tools.

Many in our industry are agonizing over this new service thinking the human adviser will eventually be displaced.  The crux of the article was that most middle-class families do not systematically save and invest. I would argue that they do not save, invest, plan, examine, or monitor their investments, retirement plans, insurance coverage, and estate plans in any meaningful way.

It is true with the internet and tenacity an average person could build an adequate portfolio and monitor that portfolio.  However, that all takes time and major effort.  The vast majority of people during a bull market assume anyone can manage money, but the true value of a money manager is readily apparent in a down market.  We are diligent and trained to lead with our brains and not be misled by fear.  One only has to look back to 2008 and 2009 when investors, out of fear, sold their portfolios at a great loss and some still have not recovered.  Once you make the decision to get out of the market, you have to also make the right timing decision to get back into the market.  During that huge market turndown we as advisors were tasked with continuing to educate our clients helping to alleviate fear, and preventing them from harming themselves by selling when the market was low.  The best time to buy is when the market is on sale.   A robo-adviser cannot look you in the eye and coach you through those difficult times. 

Saving is also difficult for the average person.  Retirement is a long way off and they assume they can start saving later rather than sooner.  Spending temptations abound:  a bigger house, a shiny new car, a big screen television, etc.  An adviser helps you set goals and can hold you accountable to meeting those goals. 

A strong financial plan involves estate planning and legacy planning which requires a familiarity with the family dynamics and honest discussions.  Retirement planning considers your current and future spending habits.  Withdrawal rates are but one consideration; spending rates, future medical expenses, college expenses, and your own personal goals are more meaningful to an individual.  A robo-adviser is not programmed to act as a devil’s advocate or trusted advisor; it will only tell you what you want to hear.  A human adviser is programmed to tell you what you need to hear.  Financial planning is not plug-and-play; there are a myriad of decisions involving long and personal discussions.

All questions and comments are welcome.

Suzanne M. Antonelli, CFP®