Hands-Off vs. High-Touch Investing
Robo-advisors and Traditional Firms Square Off for Your Trust
by Bobby Connors
Checking out at the supermarket? Tap to pay.
Tracking your heart rate during a run? Download an app.
Positioning your life’s savings to protect your family’s future?
Hold the phone…
As the reach of technology advances into the most intimate aspects of our lives, investors of all stripes are naturally curious about leveraging “robo-advisors” to automate their portfolios.
Have accessible, democratized investment tools eliminated the need for personal (human) financial advisors?
A closer look into the features of the latest fintech reveals that the choice between machines and mankind may not be so black and white when it comes to getting the most out of your green.
Programmed with people
Sinking your funds into cyberspace can simultaneously feel prudent and reckless.
Emotionless, data-based decision-making could be the name of a pre-requisite seminar at the most prestigious business school. The neutrality of an algorithm is appealing in the face of reactionary and illogical decisions based on feelings.
Misunderstanding the fundamentals of robo-advising could compromise your ability to make informed choices. Forgoing the confidence instilled by an empathetic expert could rob you of the moxy necessary to make bold moves.
While opting into a tech-based approach may feel sterile and uncertain, many robo-advising platforms cushion the leap with a team of seasoned financial professionals (people) ready to provide answers and humanity.
Offering a diverse menu of features, many of the top-tier robo-advisors have options to add as much or as little additional support as you’d like to your portfolio strategy. As your needs evolve, scaling services up or down can be useful to calibrate your approach and ensure that you are comfortable and confident.
Big-picture bots
A well-worn selling point of traditional financial planning firms is the value of relationships built over time, and the ability of a personal mentor to take into account your long-term goals from a holistic perspective.
The trustworthiness imparted by a knowing handshake from an ally that truly understands the importance of putting your daughter through college may never be replaced. However, the notion that robo-advisors lack the capacity to balance your goals against the “full picture” of your finances may be diminishing as users can now link their bank accounts and other assets to their robo-advisor profiles.
In fact, real-time access to the ups and downs of markets held against each facet of your holdings can give robo-advisors the upper hand when it comes to taking actions based on your personal situation.
Factoring in privacy concerns and the human element, choosing a leading platform like Wealthfront with no real options to speak with real people may not be for everyone. That doesn’t necessarily mean that tech lacks the vision to factor in the complexities of your overall strategy.
The undeniable power of automation
Two of the biggest advantages of robo-advisors involve automated actions that human beings will never rival:
Daily Tax Loss Harvesting: Regularly selling investments at a loss to offset gains from sales-generating profits
Rebalancing: Robo-advisors automatically redistribute your positions based on changes in the market relative to your goals
Hard math can mean cold hard cash in your pocket when it’s calculated and leveraged on your behalf at a speed traditional processes can’t compete with.
Both tax loss harvesting and rebalancing features are available on most platforms, including Betterment, an accessible ($10 to start, no minimums to maintain) option ideal for beginners.
Higher-risk maneuvers based on current events and geopolitical predictions remain in the realm of men, and savvy investors who prefer an active role in their portfolios may find less value in automation.
A Digital Arrow in Your Quiver
Robo-advisors provide affordable (around .25% annual fees) investment management options to automate portfolio decisions in a predictable fashion.
Generally rooted in index funds, most platforms admit up-front that they don’t aim to radically outperform the market. A well-diversified portfolio may include funds invested both through robo-advisors and other avenues that facilitate riskier behavior.
With customizable features that keep people in the picture, acknowledge your long-term goals and equip your financial arsenal with modern tech strategies, robo-advisors definitely deserve a cyber seat at the table.
