by Ted Halpern
Recently I visited the doctor with my wife to schedule her gallbladder surgery. Exciting date, I know. But surprisingly, in that doctor’s office I noticed a trend I’m seeing in the financial world too.
Bethe’s doctor recommended robotic surgery because the robot allows visibility 4 times better than the human eye, and can reach areas that would traditionally require invasive surgery. The doctor advised us on the pros and cons of the two robotic surgery options. The first option involved just one incision, but potentially more pain and a longer recovery. The other option had more incisions, but would result in less pain and a shorter recovery time.
In my industry, robo-solutions are becoming more popular too. You may have seen ads for providers of low-cost, automated investment advice called “robo-advisors.” Answer a few questions online, plug in your login information, and boom! You have an investment allocation according to your age and risk tolerance.
For some investors, this is perfectly appropriate. Their situation may be fairly simple and they don’t need (or want to pay for) more complex or ongoing advice. The solution is ok for a small single-account portfolio.
But not all financial decisions can be made with if-then statements or rules that a computer program can follow. Life is hard to automate. Some months you take home less and spend more. Sometimes, things need repair or you go on a vacation. Perhaps a job changes, retirement plans change—and all of this impacts your savings, investment and retirement plan. It’s hard to imagine a website or app managing all of these scenarios because the issue is not purely numbers—it encompasses human behavior, random chance and the hard numbers of cash flow and taxes.
On the other hand, some things are purely numbers. Take portfolio rebalancing, for example—it just makes sense to use technology to speed up the task of selling and buying when your investments drift out of balance from your target allocation. Yet even when the numbers are cut-and-dried, it helps to have a human touch to override the rules when necessary—for example, if certain investments are attractively priced, it might make sense to buy “on sale,” even if the allocation is not exact. A human manager ensures the outcome occurs as intended—and that it occurs at all. (Most individual investors do not rebalance. They don’t like selling off some winners and buy the losers, even if it is in line with their long-term goals!)
There is no question that automated apps and robo-solutions are huge drivers of innovation and cost-cutting in all industries, not just mine. It makes sense to use the best tools available for the job, like the surgeon who recommended the robotic surgery that can do the job better than a person. The same goes for your hard-earned money.
Advisors should use the latest technology, but technology alone isn’t enough. A person is still needed to guide the operation, and provide advice to the “patient” based on years of training and expertise.
I’ve seen several articles in industry magazines about the “robo threat” to advisors. But if an advisor’s only value is performing transactions that can be done by a bunch of ones and zeros, they are not earning their fee.
Rather than seeing robo-solutions as a threat to my business, I see a huge advantage. Our firm frequently tests and adopts new technology to serve our clients more efficiently. We let the robots do what robots are good at—repetitive, rule-driven processes like data grabs and calculations. We let humans do what humans are good at—connecting on a personal level, and using our expertise to help our clients meet complex challenges.
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