Are Robo-Advisors the Way of the Future? The Jury Is Still Out
By Kathleen Monday January 13, 2020 No Comments
As automated and on-demand services become increasingly popular, it’s no surprise that robo-advisors are also on the rise. Robo-advisor technology has certainly come a long way since its launch in 2008. But some still hesitate to turn over their finances to an algorithm, and this is often with good reason. After all, it’s hard to imagine a computer that can truly compete with the value of an experienced financial professional.
For many investors, the decision is a difficult one. Should you choose a traditional financial expert, or embrace the convenience of robo-advisors? That’s why we turned to the team at HighPoint Advisors to explain how robo-advisors work and what you need to know when choosing your preferred method of financial planning.
Robo-advisors use formulas to dictate how an investment account should be set up and when trades should be made. When you create an account with a robo-advisor, you’ll fill out a questionnaire about your age, assets and attitude toward risk. Based on your answers, you’ll receive a score and investment objective, whether that’s aggressive growth or conservative savings. From there, you’re sorted into a portfolio and the technology essentially takes care of the rest.
AJ Loedel, Certified Financial Planner® and HighPoint Advisors’ Managing Director, says this automated investment system can sometimes work for people who may not want a full-blown advisor and who are primarily making smaller investments.
“They want something simple,” he remarks. “Robo-advisors are convenient, low cost and efficient. However,” he continues, “they have limitations, and we’re only just starting to see how that’s going to play out.”
Unexpected and unprecedented market fluctuations are among the most significant of these potential limitations. While financial advisors can use their experience and market acumen to guide your investments during difficult times, robo-advisors won’t have these advantages to help guide clients.
Loedel explains, “The end of 2018 was the worst market environment we’ve seen since the 2008 crisis, so it’s the first time we’re seeing robos tested in this way. Are they prepared to handle a crisis the way a human can? The data that comes out about their performance will be interesting.”
This question of flexibility seems to be a recurring theme with robo-advisors, especially when it comes to personalization. While a human advisor can get to know you and meet you where you are, an algorithm can only support a limited amount of nuance. In short, you’re getting the same financial advice as other clients with the same demographics and requirements. There is no personal touch.
“Those questionnaires ask everyone the same things,” Loedel comments. “A fully independent advisor, on the other hand, can provide customized advice on what is suitable for a particular client. It can be the difference between buying a suit off the rack and buying one that’s custom-tailored to you.”
Licensed financial advisor Patrick Newton, also of HighPoint Advisors, adds, “We can protect clients and help provide guidance from making bad financial decisions based on emotions. Robo advisors don’t know you or what you’re feeling. For example, if clients are ever uncertain, they can lean on us to help make more confident and comfortable financial decisions. ”
With this information in mind, how should you choose? In some cases, you may not need to. A growing number of financial advisors are offering a hybrid approach that combines robo-advisors with some oversight from financial professionals. In fact, HighPoint Advisors provides this service for clients because, as financial advisor Joseph Viviano explains, “The human advisor brings the personalization that robos are missing and helps take care of advanced wealth management planning.”
For some individuals, this can be a good way to take advantage of the convenience of robo-advisors and the insights of a highly trained professional. However, until financial technologies evolve to duplicate the real-life experience and individualized attention provided by a seasoned advisor, it may be difficult for robo-advisors to deliver a comparable experience.
While the jury may still be out about robo-advisors, there can be many advantages of working with a financial advisor. In addition to developing a thorough, long-term investment strategy roadmap based on your individual goals, they can also help with a variety of planning tools from insurance to estate planning.
If you’re interested in working with a financial advisor, connect with the team at HighPoint Advisors today. Call 315-627-0474 to see how they can help you manage your investments now and in the future.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Private Advisor Group, a registered investment advisor. Private Advisor Group and HighPoint Advisors, LLC are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
*This article was originally posted on syracuse.com
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