Robo Advice: Better Than No Advice?
The proliferation of Robo-Advisors bringing low priced financial services out into the market has received significant buzz over the past few years. As is customary with all new things, one must ask questions before buying into it. As a Certified Financial Planner, my question is: Does Robo Advice have true value to the average consumer? My answer: A definitive “maybe.”
The road to good advice lies in a tangle of issues that can easily sway the answer from a strong “avoid at all costs” to “yes, there’s value there.”
According to Wikipedia, “Robo-advisors are a class of financial advisers that provide financial advice or portfolio management online with minimal human intervention. They provide digital financial advice based on mathematical rules or algorithms.”
Let’s examine the premise. With Robo-advisors, Financial Advice or portfolio management is provided at a low cost, typically requiring low minimum investments. So far, sounds like an attractive deal for consumers.
But as we continue, we arrive at “minimal human intervention.” When it comes to managing your money, minimal human intervention can be good or bad. The good comes when the algorithms and mathematical rules produce an asset allocation that is sensible for the purpose for which it is intended. The good also comes when the “human advisor” interjects personal preferences and judgments that are in the clients’ best interest.
Now, let’s analyze the downside, which can be a very deep and chasm. How we consider money, how we use money, how we value money, and what we believe about money is very human, indeed, and cannot be solved by mathematical equations. The navigation of our very humanness demands a different blueprint than one produced by answering a questionnaire that produces a computer-generated solution.
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Source: Robo Advice: Better Than No Advice? – Michael F. Kay – Forbes