The 4 advantages of human vs. robo-advisors

Advisors


The rise of popular robo-advisor platforms, such as Wealthfront and Betterment, which provide automated, low-cost investment management services, leaves many people wondering if the age of financial advice from actual humans is on its way out. This is not the case, according to some recent industry studies. Although there are fewer associated costs, millennials prefer the services of an in-person advisor.

A recent survey of millennials actively saving for retirement asked them about their use of a traditional robo-advisor versus a financial advisor. The results determined that: “Traditional advisors are nearly two times more prevalent amongst millennials than robo-advisors.” This is despite the fact that there are typically higher fees associated with traditional financial advisors.

Part of what draws millennials to prefer to work with advisors face-to-face is the process of financial planning. A human advisor can help clients prioritize and track their goals and adapt as their lives change. This inherently builds a relationship that extends beyond just the nuts and bolts of investing. Here are four advantages that traditional advisors have over robo-advisors.

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1. Human emotions

Emotions may be the single most defining aspect of humanity, as a life without emotion carries no substance or meaning beyond its stark physical existence. This is by no means an attempt to wax poetic or delve into some deep philosophical discussion, but it is meant to convey the power and influence our emotions have on our everyday decisions, especially our financial ones. The truth is, we each have an inherently emotional relationship with our money. Have you ever been broke? Have you ever experienced a windfall of cash? Think back to the emotional response you had to these events and the decisions those emotions spurred you to make. Were they rational?

This is where a traditional financial advisor truly takes the cake over a robo-advisor. Robo-advisors only have one job — use algorithms to manage your investment portfolio. They are not designed to manage the emotional component of investing and building wealth. For traditional advisors, this is a daily role they fulfill. When markets decline or clients experience an important financial event, the traditional advisor is there to talk them down off the proverbial ledge and help them make a rational decision void of strong emotions.



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