Would you follow the advice of a robot?
I recently visited a wholesale nursery where robots had taken over the planting operations. Save time, money and help with scarce labor resources.
In my industry, robotic solutions are also becoming more popular. You may have seen advertisements for low-cost, automated investment advice providers called “robo-advisors.” They are mainstream in the US and they are on their way to Australia.
Answer a few questions online, enter your login information, and boom! You have an investment allowance according to your age and risk tolerance. For some investors, this is perfectly appropriate. Their situation can be quite simple and they don’t need (or want to pay for) more complex or ongoing counseling. The solution is fine for a small single account wallet.
But not all financial decisions can be made with statements or rules that a computer program can follow. Life is difficult to automate. Some months you take home less and spend more. Sometimes things need repair or you go on vacation. Maybe a job changes, retirement plans change, and all of this affects your savings, investments, and retirement plan. It’s hard to imagine a website or app that handles all of these scenarios because the issue is not purely numbers, but encompasses human behavior, chance, and hard cash flow and tax numbers.
On the other hand, some things are purely numbers. Take portfolio rebalancing, for example, it just makes sense to use technology to speed up the task of selling and buying when your investments get out of balance with your target allocation. However, even when the numbers are cut and dried, it helps to have a human touch to override the rules when necessary; For example, if certain investments are attractively priced, it might make sense to buy “on sale,” even if the allocation is not exact. A human manager makes sure that the result occurs as intended and that it occurs. (Most individual investors don’t rebalance. They don’t like to sell off some winners and buy off losers, even if it’s in line with their long-term goals!)
There is no doubt that automated applications and robotic solutions are great drivers of innovation and cost reduction in all industries, not just finance. It makes sense to use the best tools available for the job, like daycare, which can do the job better than one person. The same goes for your hard-earned money. Advisors must use the latest technology, but technology alone is not enough. One person is still needed to guide the operation and provide “customer” advice based on years of training and experience.
I have seen several articles in industry magazines about the “theft threat” for advisers. But if the only value of an advisor is to make transactions that can be made with a lot of ones and zeros, they are not earning their fees. Rather than viewing robotic solutions as a threat, I see a huge advantage. We let humans do what humans do well: connect on a personal level and use our expertise to help tackle complex challenges.
