Written by: George Shirley. Any opinions are those of George Shirley and not necessarily those of RJFS or Raymond James.
While some are predicting the demise of traditional asset management from robo-advisors, I think some of that stems from the stodgy, outdated asset management strategies that many firms still use. And there has been a lack of available options for the smaller investors and robo-advisors provide instant diversification at a low cost after answering just a few questions. I believe those seeking to build wealth and with a longer time horizon are likely to benefit as many of the larger firms will reduce if not eliminate the payment to advisors of the revenue associated with smaller households. So this does address a segment of the investing public that probably would not receive the attention from an advisor based on the lack of compensation and moves the needle a bit from completely going it on your own. Whether or not a robo-advisor can act as a fiduciary however, is another discussion entirely.
But I believe strongly in the value of human interaction with important decisions. And fundamentally, any relationship with a firm or professional comes down to an element of competency and most importantly, trust Knowing that there is someone I can talk to (especially if it is the same person) provides me with a certain confidence as opposed to an automated system. And while there is much to read about inefficiencies with investment management, algorithm based investment strategies, should not be feared, but rather embraced as an enhancement to traditional asset management.
The best advisors are incorporating technological advances into the investment process and communication while still creating a personalized investment strategy. Embracing technology to improve the client experience is really how advisors and firms will continue to remain viable in today’s marketplace. Everywhere you look, technology is changing business and failing to adapt has caused many businesses to lose huge amounts of market share before they recover, if they ever do (see Blockbuster Video). When I started as a financial advisor, I had a list of names, addresses and phone numbers from different neighborhoods, a phone book and a phone...a lot different from the tools I have at my fingertips today. I don’t think I would be able to stay in business today calling strangers and asking them if they were interested in the newest bond that we are expecting. I look at robo-advisors as a welcome addition to the investment management universe helping financial services firms to innovate and improve their offerings.