Broker Check

RoboAdvisors a threat?

| June 20, 2016
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Financial Planning

In today’s world, many of us are looking to technology to fulfill more aspects of our life whether it is shopping online, connecting with friends through social media and in the news today “The Driverless Car”!  I personally see why people love technology but I tend to be a little apprehensive when it comes to certain areas of my day-to-day life.  Obviously, my career is a majority of that day-to-day and I see how questions are swarming around about “RoboAdvisors” or technology that manages your investment accounts.  The process is simple in you fill out a few questions and then everything gets allocated according to those questions-the benefits being the simplicity and lower cost.  Believe me, simplicity is something I strive for in my life year after year-it has always been my New Year’s Resolution but I have yet to accomplish it.  So I understand the draw to the simplicity and of course everyone wants lower cost.

So naturally I want to know how this would affect my business.  I have taken notes of conversations with clients my whole career so it is easy to review how I added value to their financial picture.  There are two ways to add value; one is the obvious with investment allocations and getting returns for clients.  This is the part the “RoboAdvisors” are honing in on.  It is easy to see how they could win a lot of business looking at this part of the equation.  The fallacy is how to get the client’s risk tolerance and goals translated through a computer.  Their may be some situations where it is fairly simple and goes over well, but more times than not, I have found a client really does not know the answer to these questions until we have a serious, in depth conversation about their life and all the areas of concern.  My concern would be the computer would get it wrong and this could be a disaster for the client when thinking of retiring or trying to get their child through college for example.

However, there is a second part of adding value, which is really value added.  There is not a large percentage of us advisors out there that do this, but when they do, they are worth their weight in gold.  This value added is what a computer would never pick up on-for instance; a client sells their primary residence and adds the money to their non-retirement accounts.  The computer sees it needs to allocate the funds into the cookie cutter pie it has picked for the client, but it does not see that the client has a retirement account they are taking out of and the amount is above the RMD or Required Minimum Distribution.  A value added advisor would call the client and let them know they can take that amount down to save on taxes and allow the account the savings to grow tax-deferred while using the new funds to make up the difference.

 I understand that the advisors reading this get it and the investors may be scratching their heads.  But this is my point, this is what we are trained for and why we are hired to handle clients allocation and planning needs.  It really comes down to “you get what you pay for” and I believe our clients understand this after working together for years.

So am I worried about the “RoboAdvisors” taking over my business?  No, there is no comparison when it comes to financial planning for a client with the psychological aspects involved versus a computer.  Unless of course they get to the point where “Samantha” from the movie “Her” with Joaquin Phoenix comes to fruition and if and when that happens I hope I am on a beach somewhere sipping a hand made margarita and not looking at my screen saver dreaming.

Holly Hanson, CFP® CIMA® ADPA®

** The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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