“The times they are a changin’.” Bob Dylan wrote this song a long time ago but it still rings true today. I think for the most part the changes I’ve witnessed over the past 30 years or so have been for the better. The one that I’m not so sure about is how we are now communicating, or not communicating, as the case might be. Facebook, Twitter, texting and other forms of social media have made it easier to stay in touch, but it’s also made it easier to communicate without getting the full communication experience. I can text my wife that I love her and she would probably smile and text back, “I love you too.” But when we are face to face and I tell her I love her, I can see her reaction in her eyes and the smile it brings to her face. My message of love has been more thoroughly communicated.
Over the last few years there has been a new trend in financial planning called “Robo Advisors.” A robo advisor is a class of financial advisor that provides financial advice and investment management online with minimal human intervention. They provide digital financial advice based on mathematical rules or algorithms. With minimal human intervention, this advice and management can be provided quite cheaply.
I contend that the human interaction between a financial advisor and the client is the most crucial part of building a successful financial plan and successfully managing a portfolio. One of the most important steps in financial planning is goal setting. Any financial planning program or robo advisor can ask you when you want to retire, or how much income you need at retirement and spit out a number as to how much you need to save each month to meet that need. But it’s really the questions that go beyond that that makes the plan. And you need to be face to face to get the full story.
I recently met with a couple nearing retirement and after the hard financial data was gathered, I asked them both what their biggest concern about retirement was. He answered, “running out of money.” I was watching her while he answered and her head began going back and forth in disagreement. “My concern,” she said, “is having a fixed income and not having any flexibility in our budget to help our kids. I’m concerned about what he’s going to do for eight hours a day, five days a week. My mom is in an Alzheimer’s unit and we’re helping out with the cost a bit. Will we have to stop doing that when he retires?” Now I had some very specific goals and concerns. Plus I got to watch his facial reactions to her concerns and you could see him nodding in agreement with each one. How do you fit that information into a mathematical rule or an algorithm?
I’ve now had over 30 years’ experience of managing clients’ portfolios. I’ve seen a lot of ups and downs in the financial markets. During these times fear is the main emotion that all investors are going through. Some have higher levels of fear than others, but everyone is looking for some reassurance. But not everyone needs the same message. My 80 year old retiree wants to know if her dividend income will be affected because the markets are down. My 45 year old professional wants to know if this downturn is going to affect his goal of retiring in 10 years. I can listen to those concerns and address them individually. About the best a machine can do is send out an email or text with the same content to all clients.
Obviously, I’m biased. Robo advisors may indeed have a place for someone looking for that quick answer and some cheap help with an investment. But for the person seeking a true partner to help them set and achieve their financial goals; who want someone to keep them in the boat when the waters get rough and want an advisor they can trust and grow with, the robo advisor is not the answer.
These are the opinions of Mike Berry and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.
Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.
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