The Value of a Human Advisor

The Wall Street Journal recently featured a piece in their Money section asking the question whether robo advisors can replace human financial advisors?  It is a topic that has generated frequent discussion and debate over the past few years as these so-called robo advisors and other self-automated investment platforms have established a stronger presence and gained popularity in the investment management world.  As with every financial topic, there is no black or white answer to the debate but I wanted to take the opportunity the address the issue and offer some thoughts on the overall value of a human advisor.

There is no doubt that technology has the changed the face of the financial advisory and investment management world tremendously throughout my 40-year career in the business.  This change has accelerated at an even greater pace over the past 10 to 15 years as the Internet and other technology platforms have altered the way in which individual investors can participate in their own investment management process.  It really wasn’t that long ago when someone wanting to buy stock would have to pick up the newspaper in the morning to find a listing of stock prices and then call a broker over the phone (likely their landline!) to submit a buy or sell order.  This investor could follow the market in the daily newspaper reports and would get occasional updates from their broker regarding the state of their portfolio.

Today, investors can easily set up and manage their own investment accounts and track the real-time activity from the screens on their smartphones.  Information and resources in all areas of financial planning are readily available throughout the Internet and automated investment platforms (these robo advisors) offer individuals extremely low-cost vehicles for investing their savings.  Automated portfolio re-balancing features and tax-loss harvesting provide even further services for do-it-yourself investors.

Robo advisors certainly offer a useful service in the investment management world and can be an appropriate investment platform depending on an investor’s needs and current life situation.  Some of the beneficial features offered through robo advising include:

  • Easy access to the investing world which previously was largely reserved for older investors and high net worth individuals. Today, someone with $500 to invest can open an account and start saving.
  • Robo advisors generally offer a smart, low cost, passive investment approach that utilizes the principles of modern portfolio theory and asset allocation. They offer allocation through efficient investments such as ETFs which for most people is a far more effective investment strategy than active management and individual stock selection.

For someone simply looking to start saving and growing their money I think a robo advisor vehicle can be a useful investing platform.  In fact, The Johnston Group offers a type of automated investing platform through Charles Schwab Intelligent Portfolios where clients with simple investment needs can open an account and participate in the investment process at an extremely low cost.

The usefulness of robo advisors ends, in my opinion, when an individual (or family) develops a need to build a structure in their lives focused on achieving their own unique goals and outcomes.  An algorithm might be able to do a fine job maintaining an investment portfolio, but investment management is only one aspect to a trusted, successful financial advisory relationship.  Human advisors have perspective and emotional intelligence that can’t be replicated through a technology-driven platform.

Throughout the pursuit of their goals and dreams, individuals are going to consistently encounter challenging decisions that require more comprehensive advice than what can be delivered through a website or 1-800 number.  Human advisors understand the values and emotions of their clients and deliver custom advice tailored specifically to meet their needs.

Even as technology continues to evolve, I have no doubt that it is never going to replace the value of a trusted human advisory relationship.  Human advisors might be smart to start adding some of these digital tools to their offerings and process, but the effectiveness of this business will always lie in the interpersonal communication between the client and an advisor.  The Johnston Group takes tremendous pride in its client-centric approach that focuses on process and sound decision-making.

We recently posted a video on our website articulating our view that financial planning is not a “paint by numbers” exercise that is found on the robo platforms but rather an art form that requires vision, imagination and inspiration.  That inspiration comes from our clients and their own unique life situations.  Only humans can appreciate this uniqueness and only humans can ultimately implement client-specific plans designed to meet their goals and dreams.