The new trend in the financial advice business is the rise of the so-called robo-adviser. These are online investing platforms that use computer-generated algorithms (programs, apps, etc.) to create financial strategies and manage your money.
The attraction of these programs is that they are very low cost, don’t ask very hard questions about your finances, and are simple to use. For people in their 20s, who are making their initial investments and don’t have much saved yet, a robo-adviser might work.
So, why do you need a “real life” financial adviser? There are plenty of reasons, actually.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. They know their clients.
This is a core principle of the financial industry and the legal and regulatory system overseeing all financial advisers, brokers and investment professionals. How well can a computer program really know you? To a computer, everything is either a 1 or a 0. All computers work that way. Can you really reduce your life, your future, your dreams into a series of 1s and 0s?
2. Life happens.
“Real life” financial advisers should provide more than just a financial strategy. Most advisers understand there are things outside our control and, as time passes, our lives change, with good and bad things happening. When crises occur — personal tragedies, hurricanes and other natural devastation — many advisers spend long hours working with clients to get their lives back to normal and helping them figure out how to protect their future. Can a computer do this?
3. Accountability.
Everyone has different purposes for their money. Everyone has different investment needs. Advisers can help you define your wealth strategies and hold you accountable to the strategies you create together. Robo-advisers are designed around simple variables like age, target retirement date, risk tolerance and income level. A computer doesn’t care if you reach your goals.
4. Taxes, taxes and more taxes.
Most retirees have the majority of their money in tax-deferred accounts (401(k)s, IRAs, 403(b)s, etc.). The wrong financial move can create unnecessary tax costs, pulling hard-earned dollars from your portfolio. Robo-adviser platforms are generally only designed to handle portfolio management. They usually are not equipped to offer tax-efficient strategies, nor do they take into consideration insurance, health care or real estate in their automated calculations.
5. Life is about more than investing.
Financial advisers help you prepare for all of life’s important financial milestones: buying a house, paying off debt, funding college, fulfilling a bucket list, taking vacations as well as retirement. Robo-advisers are designed to focus mostly on investing. For clients who rely on real life advisers, comprehensive financial strategies are about much more than just their investment portfolio.
6. Who are you going to call?
Seriously, who are you going to call with a question, a concern, an explanation of what your money is doing for you, and why things are happening in the world, the economy and your portfolio? Real-life advisers are there to educate, to support, to explain and to answer your most important financial questions. I have yet to find the 800 number for my local robo-adviser, and although there are a few “hybrid” robos out there that offer access to human help, that access can be limited, and it comes with higher fees.
Today’s financial professionals and advisers have a major role to play in helping you realize your dreams, and putting you on the path toward achieving your goals so you can have the lifestyle you deserve. You can’t describe your dreams in terms of 1s and 0s.
Is the rise of the robo-advisers a passing fad, like pet rocks, or are they here to stay? Time will tell. One thing’s for sure: a computer program won’t care about you, your family and your future the same as a real-life financial adviser.
Mark Fried is a Chartered Retirement Planning Counselor, lectures on finance at several colleges and has contributed to both local and national publications and TV shows. Mark is an Investment Advisor Representative and insurance professional.
Steve Post contributed to this article.
-
What Dave Ramsey and Caleb Hammer Taught Me About Handling MoneyFrom Ramsey’s strict discipline to Hammer’s blunt reality checks, their lessons reveal how to save, invest and prepare for the future.
-
Dismal August Jobs Report Offers Rate-Cut Relief: What the Experts Are SayingThe August jobs report came in much lower than expected, lifting the odds that several rate cuts will come through by year's end.
-
Greed, Fear and Market Volatility: A Financial Adviser's Guide to Keeping Emotions Out of Investment DecisionsDon't panic! And don't be so confident in the stock market that you overlook risk. Instead, be logical. Your retirement security could depend on it.
-
Want a Financial Adviser Who Shares Your Faith? Look for One With a CKA DesignationFinancial professionals with a Certified Kingdom Advisor certification are committed to integrating biblical principles with sound financial advice.
-
10 Ways to Stay Safe From Grandparent Scams and Other Fraud, Courtesy of a Financial PlannerScams are increasingly hard to detect, and anyone can be fooled, from older people to educated professionals. Here are 10 ways to avoid becoming a victim.
-
This Is How the Student Loan Bubble Is Primed to Pop, From a Student Funding ExpertFueled by easy money, inflated tuition and high default rates, the student loan bubble mirrors the 2008 subprime mortgage crisis. We could be headed for a potential financial collapse. What can we do?
-
More Than Money: The Hidden Toll of Financial Abuse of Older AdultsFinancial abuse from schemes involving tech support, government impostors, false sweepstakes, grandchild hoaxes and online shopping issues can cause thousands of dollars in losses.
-
I'm a Financial Planner: Here Are Three High-Impact Ways to Make a Difference With Your DollarsThe world often feels out of control, but here are three ways to use your money — through investments, charitable giving and political donations — to help create a more just and sustainable future.
-
The Unsung Hero of Aisle 5: A Tale of Forgotten Change and Compassion at the SupermarketThis supermarket manager went above and beyond to help when a child forgot her change at the checkout counter. You might be surprised at some of the complications that supermarkets face when it comes to customers' forgotten change.
-
Train, Integrate, Retain: A Strategic Playbook for Adviser OnboardingsBuild a thriving practice by training new advisers with clear goals, structured processes and consistent mentorship for strong team growth.
