Robo-advising is here to stay. The biggest players in the wealth management industry, including Fidelity, Bank of America Merrill Lynch, and Charles Schwab to name a few, are all offering robo options to appeal to investors who prefer more autonomy and self-direction in their investments. That said though, robo-advisors still hold only a small share of the advice market. One industry survey suggested that only around 4% of mass affluent and high-net-worth clients are using a robo-advisor.
There’s no argument that robo-advisors have their place, but no matter how advanced they become, they’ll never be able to replicate some critical elements of the human touch. There are some things that only an advisor can do.
For example, only a human advisor can form a relationship with an investor. Trust is the bedrock of investment management, and at some it takes human interaction to build that trust. A robo-advisor can’t sit down for a heart-to-heart and understand your concerns, or be there for you when life events impact your finances.
And when an advisor has put in the time to build a relationship, that advisor understands the client’s situation in a way that a robo-advisor can’t replicate. The human advisor has the whole picture, and can take a holistic approach to wealth management. Robo-advisors act on algorithms using only economic and market conditions. They can’t understand how a financial decision could impact a client’s overall situation. This is precisely why so many high-net-worth clients still rely on human advisors – even clients who otherwise enthusiastically embrace every new technological development.
Robo-advisors also aren’t worth much when it comes to managing a client’s emotions. Especially during market downturns, clients are prone to making snap decisions based on fear that might not be in their best interests. A robo-advisor never talked anyone off the ledge. One of the most important things than an advisor can do is to coach clients during periods of high emotion and ensure that they don’t act to their own detriment.
For more on humans vs. robots, please see:
Three Things an Advisor Does That a Robo Can’t | Wealth Management