Technology is amazing. One can’t help but marvel at the constant advancements in technology of all kinds: computer/data processing, communications, medical, automation, artificial intelligence, robotics, and on an on. I believe technology has improved our lives by enhancing the efficiency and speed at which we complete tasks of all kinds, thereby reducing costs, improving the efficiency of our economy, and reducing inflation. There are some drawbacks of course, such as loss of privacy, “cellphone anxiety,” cybercrime, and the isolating impacts of social media — but generally, I believe advancements in technology have made and continue to make our world a better place.
The financial services sector is certainly benefiting from advancements in technology. To name a few ways, we see it in greatly improved efficiency in document and accounts processing. We see it in much lower cost platforms for investing and trading, which is reducing costs for clients.
One growing trend within the financial planning and investment industry is so called “robo advisory” services. As of now, these are primarily focused on automated investment services all done completely online with no human interaction. Investors can answer a few questions, be assigned an investment allocation, and invest via index or mutual funds.
To be fair, there are some benefits to robo advising: It can broaden access to basic advice; there can be some educational benefit; it is low cost; it is a reasonable mechanism for helping individuals get started in investing in a presumably more responsible way.
But in dealing with clients with more complicated planning and investment needs, robo advising still has some pretty serious drawbacks.
The biggest drawback I see now for robo is the lack of human interaction and face-to-face communication. In more complex planning situations, face-to-face interaction is critical for a more comprehensive understanding of the nuances or special aspects of a client’s needs or the psychology behind the decisions that are made. Robo advisors don’t review policies, tax returns, a financial plan, college education plans, or long-term care strategies.
Robo still can’t do a sophisticated tax strategy or estate plan. A robo platform can’t make referrals to outside experts such as CPAs or estate attorneys, which are integral in many cases to delivering optimal planning and advice for a client. A robo can’t replace human judgment and intuitive knowledge that can be a critical aspect of providing the best solution for a client. A robo can’t help clients avoid financial mistakes.
As advisors and planners we provide counseling, coaching and the tools to develop and implement a plan that is dynamic and can incorporate life changes and events and human emotions . In an age of advanced technology, we tend to slip away from the human connection. However, engaging and communicating with your trusted adviser is one of the best choices you can make in an era of artificial intelligence and robotic advice.
Robert Toomey, CFA/CFP, is vice president of research at S.R. Schill and Associates on Mercer Island.