I have learned throughout my career in investing that technology can be a true disruptor. Oftentimes, I have witnessed disruption from the perspective of an investor. New technological developments provide value to a company or industry while breaking others not willing to adapt. In any service industry, there has to be a willingness to integrate technology but not lose sight of the human element. Recently, the investment industry itself has fallen prey to the technological advancements purporting to replace the personal oversight of an investment professional.
Robo-advisors offer a simple process of automated investing with low costs and with little human intervention. These services are now being offered and heavily marketed to millennials and other retail investors that have grown up relying upon technology for almost everything. Downloading songs in 30 seconds, planning vacations and even buying groceries can be done without ever leaving your sofa. For these people, an automated advising platform may be preferable as they enter into investing and long-term planning for the first time. With easy-to-use technology and a simplified investing platform, tech-savvy users can grow their assets while their financial future begins to take shape. Investors with smaller assets may find value as well, if they are willing to embrace this technology. With smaller assets, clients can take advantage of lower costs.
Investors may do this on their own with an independent robo-advisor platform or work with an advisor who offers this as an option with some oversight for an additional fee. Advisors offering this option in their services can grow their businesses by offering low-cost solutions to these clients. As clients begin to amass more and more wealth throughout their lifetime, they will already have an established relationship with an advisor to help navigate ongoing financial decisions. Recognizing the unique circumstances that may apply to a person’s emotional reaction or financial situation is not factored in by an automated system.
In times of uncertainty and high market volatility, the guidance and coaching of a financial advisor becomes critical, especially when bigger dollars are at risk. Investors can seek guidance and advice from an advisor on such matters as college funding, complex income tax planning, and retirement planning where various investment strategies and portfolios may be implemented and targeted for these needs. An automated robo-advisor cannot offer advice. In contrast, a robo-advisor only offers a simple questionnaire to develop a risk profile and generates a plan through algorithms to invest accordingly. However, this technology enables advisors to manage more accounts effectively and efficiently.
In the investing industry, the trend for advisors is not to combat this technology, but rather to adapt it and use it to grow. Adapting and mastering this newest technology is critical and something that deserves our ongoing attention. Being more efficient with technology opens the door for more human interaction in our service model, which can make all the difference in people’s life decisions as well as the growth of the firm.