Monday, 15 May 2017

Investopedia: What can an in-person Financial Advisor provide that a Robo-Advisor cannot?


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What can an in-person Financial Advisor provide that a Robo-Advisor cannot?

By Rebecca Dawsoon

I've been bombarded with ads featuring robo-advisory platforms that have a lot of online financial planning tools. What do these tools lack that an in-person financial planner can provide?
Financial Planning, Choosing an Advisor
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5 days ago
Rebecca Dawson
Dawson, Rebecca
Los Angeles, CA
100% of people found this answer helpful

Lets first make a distinction:

1) Robo-advisors offer financial services with minimal human intervention. They provide digital financial advice based on mathematical rules or algorithms. These algorithms are executed by software and thus their financial advice does not require a human advisor. The software utilizes its algorithms to automatically allocate, manage and optimize clients’ assets. Most robo-advisor services are instead limited to providing portfolio management without addressing issues such as estate and retirement planning and cash-flow management, etc which are also the domain of financial planning.

2) A discount brokerage is a business that charges clients significantly lower fees than a traditional full service brokerage firm but without providing financial advice. Discount brokers typically allow investors as well as consumers of financial services to buy and sell on-line while offering comparatively fewer services and/or support.

3) A full service brokerage financial advisor is a licensed financial broker-dealer firm that provides a large variety of services to its clients, including research and advice, retirement planning, tax investing strategies, and much more. Full-service brokers can provide expertise for people who do not have the time to stay up-to-date on complicated issues such as tax or estate planning.

Depending on what your inidividual needs are would determine your choice of financial advice. Retaining the services of an experienced financial advisor far out weigh the services of a robo advisor or even a discount firm. There are many variables and personal financial differences that cannot be evaluted by mathematical algorithms. Also, your financial advisor is a trusted advisor available for consulting with you during the ups and downs of the market. Dealing with a small independent advisor will enable you to customize a portfolio specifically for you and your family.
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5 days ago
Tommy Sikes
Sikes, Tommy
Chapel Hill, NC
100% of people found this answer helpful

I agree you should have both a robo and human adviser. Here's why:

    Robo-adviser for investing, rebalancing, tax loss harvesting, etc. Stuff where computers are better than people. I prefer Betterment as a robo-adviser.
    Human adviser for the one thing most people need most: Accountability.

Not accountability of the adivser, but accountability of YOU. You have stuff you say want to do, experience and achieve. You can find answers to most financial questions/problems/issues you have.

The knowledge is nothing.


This is your one life. Figure out what you want now. Take action on it now.

That's why some (most?) people need a human adviser. To call them on their BS, say "Do you want this or not?" and move them to action.

My huble opinion, of course...  :)

Hope that helps!
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5 days ago
Georgia Bruggeman
Bruggeman, Georgia
Holliston, MA
100% of people found this answer helpful

If your financial situation is realtively simple and you are only looking for investing and rebalancing help then maybe a robo advisor would work for you.

But if you are looking for a more hands on relationship with someone who knows your financial situation in detail and can offer proactive advice on a variety of financial areas a robo can't do that for you.

A robo cannot advise you on the correct trust to use to maintain the tax deferred status of your 401k if you were to die and had small kids.  A robo is not going to be able to run different scenarios and model if you can make a non deductible IRA contirbution and converting to a Roth or that irrevocable trust income has to be paid out to avoid trust tax rates.  A robo will not be able to advise you on the best low cost 529 plan, determine how much life insraunce you need and what kind to get.  If you have a question on a financial topic and want to run it by someone a robo cannot do this.

Online financial planning tools are full of faulty assumptions and can make people feel more comfortable that they should.  You can google reviews of online financial planning tools.  They are very basic and should not be sued for anythign more than simple calculations.

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5 days ago
Daniel Schutte
Schutte, Daniel
Denver, CO
100% of people found this answer helpful

Human advisors may suggest that nothing can replace intuition and experience. Robo advisors may suggest that nothing can replace computerized algorithms and automated technology. What if you as the investor could have both? You can!

Factors you should consider with either choice, or a hybrid of both, may include:

    Are your personal goals being properly supported through a comprehensive outlook of your situation?
    Does your advisor strive to maximize returns from low-cost funds, rebalancing, and tax advantaged techniques?
    Would you have more confidence and peace of mind from at least some human oversight for a small fee?

Once you can answer these questions, you probably have found the optimal match in an advisor.
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5 days ago
David Wattenbarger
Wattenbarger, David
Chattanooga, TN
100% of people found this answer helpful

There are things that "robo advisers" are good at: collecting inputs, running mathematical projections, perhaps even budget management via "account aggregation".  However, robos are limited to their programming and cannot engage in any manner of "lateral thinking".  Investors often have life circumstances that do not map cleanly onto the robo's options and could potentially benefit from having an experienced human planner or adviser offer some more nuanced advice.  Consideration for "complicating factors" like marriage, divorce, a special needs child, abnormal tax concerns, self-employment, a retirement target date significantly earlier than "normal" -- these are all examples that may not be fully addressed by a robo.
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