Technology is constantly changing; this is true in every industry -financial services is no different. Today, I am going to be talking about Robo- Advisors vs. Registered Investment Advisors (RIA). If you have not seen the advertisements for robo-advisors (robo) or do not know what they are, Investopedia defines a robo-advisor as “digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision” (Investopedia.com). These robo-advisors take “some” of your information and allow you to invest based on the parameters you set; this sounds like part of my job. So, you may ask what the difference is and how can I compete with this technology?
The major differences between a robo and an RIA are the differences of having assistance with planning and education. A robo is simple; it relies on you to know the data and to input it. For example, you may have a situation like this: you have an old 403(b), you’re currently adding to a 401k, you have a large checking balance due to a sale of property, a beneficiary IRA from the passing of a relative, you are still paying off some student debt, and you have a baby on the way. How would a robo handle this? They would rely on you to know your options and to decide on what financial decisions you should make. However, part of our jobs is to gather all the facts and data so that we can help you plan for your future. When talking to a financial professional, we will analyze all this data to help you make the best decisions for you and your family. We could compare this to doing your taxes: there is technology (ex. TurboTax) out there that allows someone to complete and file their own taxes, but how do they know they are maximizing your deductions or even filing correctly?
It is true, Robo’s do have their place! They can do a good job when an individual is just starting out and has a long-time frame before needing to use the funds. The reason for this is because at least it is a way to start investing for a small cost. Having a financial professional adds value when it comes to your individual needs, as Vanguard says, “wealth managers and behavioral coaches, providing discipline and investment experience to investors that need it” (vanguard.com). Vanguard reports that an advisor has an “alpha” or excess return to the client. This excess return is in the advisor’s ability to educate the client and help them stay on course for the long term. This is most important as life, and the market can change quickly. As in my example earlier, we would have time to talk about and plan for your life’s goals. We would also be able to assist with keeping you on track when the market takes an unexpected turn. What would you do when the market goes down, and you get nervous? Fortunately, I get to be the person on the other end of the phone, guiding you through and helping to rest your mind. We will then work together to make sure short-term actions (if necessary) that don’t affect your overall goals.