Days of doing manual tasks are way behind us, and despite the debate surrounding the emergence of robo-advisors being a threat to human advisors, there seems to be no sign of stopping it.
Created as a result of the 2008 financial crisis, robo-advisors were first launched by Betterment and since then many others have followed suit, including PersonCapital and Wealthfront. Their main goal was to provide millennials (especially someone who’s just getting started) with a cheaper alternative to future financial planning and investments instead of getting a financial advisor, who often ends up charging on the higher side.
In short, robo-advisors aren’t actually robots, but a sophisticated automated platform that use advanced algorithms to asses, analyze, curate, carefully handle and monitor your investments based on your preferences and needs. The process includes starting with a questionnaire to find out about your goals, timeline, and sensitivity to risks; then it pairs you up with a curated portfolio that’s aligned with your preferences.
The standout feature of having a robo-advisor for your investment planning is perhaps the lower fees, free trade and no transaction fees, which unlike if you were handling alone, could cost you thousands of dollars. Some of them also offer services such as portfolio rebalancing and taxloss harvesting, making them an easier option to choose for millennials and seniors alike.
Having said all that, most people seem to agree that when it comes to seeking advice regarding the subjective aspects of investments, only a human can guide another human. The growing influx of robo-advisors into the lives of millennials might seem like a threat to human advisors but as it turns out, not everyone is mad at the idea. People like Sophia Bera of Gen Y Planning use Betterment to handle tax loss harvesting and asset rebalancing so she can focus on the other aspects of financial planning for her clients.
Perhaps robo-advisors shouldn’t be seen as threats but agents to help make the work of a financial advisor easier and more efficient. While a robo-advisor can carry out the objective means of investing such as building a well-diversified portfolio, auto-rebalancing, etc, people prefer to work with a financial advisor to identify investment goals that are important to them.