Robo-Advisors Can’t Deliver the Total Client Experience

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Will robo-advisors replace traditional financial advisors? Probably not. Is it because they are flawed? Not necessarily. Digital advice platforms have their place and complete certain tasks well, but they aren’t even close to replacing the full-service financial planning experience that most serious investors expect today.

What exactly is a robo-advisor? While services and platforms vary, typically they are digital financial tools that provide financial advice or portfolio management online with very little, if any, intervention from a traditional financial

 services professional. These self-service investment platforms provide advice based on mathematical rules or algorithms and then automatic

ally allocate, manage and optimize clients' assets. Not surprisingly in this DIY, get-what-you-pay-for ecosystem, the fees are lower than those charged by most traditional full-service financial advisors.

Human to Human Relationships Matter

In some ways, the doctor-patient relationship is a lot like the advisor-client relationship and just as difficult to simulate. Imagine, for a moment, working with a robo-doctor. The medical algorithm could certainly analyze the data the patient enters into the system but it won’t “know” the patient, his or her nuances, quirks, medical or sociological history, or when to ask a probing question that really gets to the heart of the matter. Software programs are a great place to start gathering information, and in cases when the matter is simple and risk is low, they might correctly make a routine diagnosis. But when the stakes are high, robo-medicine isn’t where patients will place their trust. The same goes for an investor’s financial health. 

Clients with significant assets expect advice that helps keep their entire financial universe healthy, today and in the future. While clients demand top of the line technology and security, a financial services firm’s technological edge is only a part of the client experience. For the most part, robo-advisors rarely address issues such as retirement planning, estate planning, and cash-flow management, all important parts of the holistic financial planning service.

Big Data Not Necessarily Better

The use of artificial intelligence (AI) and machine learning is now a large part of financial services advice both for traditional advisors and for robo-advisors. One concern some experts have expressed is the lack of transparency surrounding the assumptions being made by AI when choosing funds and allocating assets. “In terms of the actual advice that financial advisors provide, the use of AI could certainly help, but the advisors should be more cautious and stay aware of the limitations of AI,” said Jillian Grennan, a professor at Duke University, in a recent story by ThinkAdvisor.

Even when the data is accurate, a big part of a financial advisor’s role is to stay calm in the face of turbulent markets. Can a robo-advisor keep a client calm when markets decline? When portfolios fall 10% in a day or 25% in a week? When past performance has nothing to do with the events of the day and there’s no precedent for current conditions? That’s when a seasoned financial professional with a steady hand is worth his or her weight in gold.

At Berthel Fisher, we make it our mission to help our advisors deliver the best client experience in the business. From our investment products and advisory services to our back office support and top of the line financial planning tools, we are continuously investing in every advisor on our team. If you are interested in joining Berthel Fisher, get started today or give us a call at 1-800-356-5234. 

By Andrew J. Christofferson

Andy Christofferson is Chief Business Development Officer and Director for Berthel Fisher subsidiaries. Andy joined the Company in 2012 and holds FINRA securities licenses 7, 24, 63 and 65. He is a graduate of the University of Northern Iowa in Cedar Falls, Iowa where he received a Bachelor’s degree in Finance.