Humanizing the Robo Advisor

By Caroline Galbraith | Guest Blogger | Nashville Business Journal | September 2015

Automation has become a normal and expected part of our daily routine. As it relates to your personal life, applications that target entertainment, shopping and other social activity can be convenient and save you time.

But are “convenience” and “time-saving” terms you really want associated with professional services such as legal and financial counsel? For some, the answer to that question will always be a resounding, “No.”

At the same time, there is a growing number of people who want to balance technology and personal interaction when it comes to their professional service relationships. Here are a few ways to achieve that balance as it relates to your investment adviser as well as some recommendations on how to structure a strategy that includes both technical and human elements:

The Rise of Robo-Advisors

A Robo-Advisor is an online portfolio management platform that utilizes advanced algorithms to recommend an investment strategy based on a pre-defined criteria. Simply put, you answer a series of questions, and the Robo-Advisor invests your money based on your responses.

At a base level, that’s the structure of all investment relationships. At the same time, keep in mind that technology is merely one vehicle for achieving your financial goals. Assuming that you are looking at your path to financial success through a broader lens, let’s consider some of the immediate upsides of Robo-Advisement:

  • Robo-Advisors have gained more ground in terms of engaging young investors than all other mediums. They offer an accessible, affordable platform for people to start investing, and they utilize a technology with which this audience is comfortable.
  • Robo-Advisors are convenient. They work on all types of devices, and accounts are simple to create. And if you are just getting started with building a portfolio, they push you out of the gate quickly, allowing you to establish an investment pattern and to start building a more strategic plan for the future .
  • While Robo-Advisors utilize algorithms to define your investment strategy, those algorithms are typically built around solid economic research such as the modern portfolio theory.

Picking the Right Robo-Advisor Platform for You

To pick the best Robo-Advisor platform for you, first understand that a technology can’t respond to some critical investment factors such as emotion, family and education planning or a sudden change in income. Those are all human factors that require human interaction to address. Here are some quick steps to point you in the right direction:

Outline your financial future. Identify goals and objectives that span three, five and 10 years down the road, taking into consideration your tolerance for financial risk and all the other factors that define your investment personality.

Spend time researching Robo-Advisor platforms to make sure that they contain some element of actual human interaction. There are not many of them out there. You will want and need to have access to a qualified financial professional at some point. If nothing else, you need a financial adviser to review the Robo’s recommendation on an investment strategy. If all you are getting is an algorithmic blue print, keep looking.

Make a plan. How much and how often do you want to invest? That is one advantage to Robo Advisement — the automation component will enable you to invest with consistency.

Watch your portfolio’s performance and make adjustments based on your personal financial situation. Again, this is where you really need access to a qualified professional who can advise you based on the Robo’s available options.

A Robo-Advisor should be considered a short-term solution for most investors. As you accumulate wealth, look for a relationship with a registered investment adviser who can significantly customize and carefully monitor your investments. If you have taken the time to identify a technology platform overseen by professionals, this transition could be seamless.

View All News