The Verus Team

An Advisor’s Take on the “Robo-Advisor” Phenomenon

Written by: Derek Majkowski. Any opinions are those of Derek Majkowski and not necessarily those of RJFS or Raymond James.

It is without a doubt important to utilize all of the great tools offered by and through the advancements of technology.  As a 22 year veteran in providing investment and financial services, I have seen the advent of many online tools and technological advancements in this industry.  Innovation is necessary in today’s world in order to be in touch and in tune with information quickly and efficiently.  Add the convenience of mobile, and this is even more relevant in order to meet individual’s demands in a timely fashion.  Technology, is a great way to have all of those demands met at your fingertips 24-7.

When I first heard about Robo-Advisors, I barely took notice.  In part because the financial services industry, like many other industries, is constantly trying to find ways to reach more clients and find cost efficient ways to attract more customers.  Like the introduction of discount brokerage in the late 1970’s, or the advancement of online trading in the 1990s, companies have long been looking for ways to provide lower costs, and offer convenient tools for investors.  It was only a matter of time for institutions to start exploring ways to offer additional advice vehicles that utilized technology and addresses the cost of managing assets. 

It’s simple, people want cheaper, convenient solutions, and the Robo-Advisor is the latest phenomenon, or the next chapter in the evolution of investing.  Like the introduction of previous industry shifts and innovations, the quality advisor or investment manager will embrace the birth and development of the Robo-Advisor.  It is an opportunity for the quality advisor to internally utilize these tools as well, and highlight some of the benefits associated with this new offering.  In short, it attracts more people to saving, investing, and becoming more informed on markets.  In addition, the human advisor has the ability to further differentiate his or her services from that of a machine. 

While technology gets smarter and smarter, and the algorithms used in these services become more and more sophisticated, there will always need to be some differentiation or value in the way someone seeks financial services.  This was no different decades ago, and it is no different now.  While the Robo-Advisor may provide a bevy of investment solutions, and preaches the extinction of emotion in the favor of discipline, we are already seeing a shift in the way they provide their services.  In fact, like the online trading revolution, we are seeing that these Robo-Advisors need to differentiate and distinguish themselves from not only the human advisors, but also from each other.  This is through marketing various price points, investment models and strategies, or even the introduction of some human assistance. 

I think the advantages associated with the Robo-Advisor is that it gives investors the ability to have access to another potential platform to get exposure to the market, while offering non-emotional investment advice at a cheaper cost.  The downside to this platform for clients however, is that as more and more players enter the space, it exposes individual investors, typically newer to investing or less sophisticated, with the need to parse through all of these offerings to get access to the correct fit.  It becomes not so different than selecting your own 401K investments when you have so many options to choose from. 

In addition, investment management, which most of these organizations primarily offer, is different from overall financial planning.   At some point, each individual needs to have a rational and reasonable connection between one’s money and one’s goals - both in the short and long run.  Typically when one looks to modelled algorithms for that input and advice, it is difficult to customize and personalize to someone’s very specific, and at times, emotional needs, goals, and wants.

In short the Robo-Advisor has sprung from the demand for unbiased advice, convenient access, and reasonable prices.  I don’t know any quality advisor in today’s investment environment that would not be open to having that conversation with someone in how they can deliver those services, and build a longstanding relationship.  By utilizing both technology (the science), and convenient human interaction (the art), I think you get the best of both worlds.  The more options to consider, the better.

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