Robo-Advisors: Pros, Cons, and How Human Advisors Can Adapt

Robo-advisors are complex computer systems that can review analytics and make financial recommendations based on current trends and on the personal preferences of an investor. Investment companies such as Vanguard have already spent millions on the development of this automated investment solution, and it’s likely that as millennials get older and become more active investors, the service will increase in popularity.  But is using a robo-advisor always the best choice? Here are some possible pros and cons of the trend and how investment advisors can adapt.

Robo-Advisors Would Make Financial Advice More Accessible
A reliable computing platform would be the only expense financial companies would have to cover in order to offer automated advice to clients. This should result in lower rates for investors and allow individuals who cannot afford to pay a financial advisor for their services to get access to more reliable information on how to manage their finances. Investors who choose self-directed investment accounts would greatly benefit from robo-advisors.

These automated tools could offer a number of services, such as personalized investment recommendations, re-balancing and financial planning besides providing investors with detailed statements. Currently, most investors do not have access to these services unless they pay a fund manager.  Robo-advisors would also allow investment services to automate certain tasks and switch their focus to providing clients with one-on-one counseling and better customer service. The existence of virtual advisors would increase the pressure for financial advisors to justify their role and their fees, resulting in higher returns for investors who decided to stick with a real advisor.

Would Financial Services Truly Focus On Providing Investors With A Better Experience?
Robo-advisors would make financial advice more affordable and accessible to a number of investors as long as financial companies use this automated tool to offer lower rates. Relying on these virtual advisors could allow financial services to simply increase their profit margin without focusing on providing clients with a better experience.  There might also be issues if financial services rely on robo-advisors to plan investments for their clients without disclosing that these services are automated.  Lastly, some investors might fail to understand that robo-advisors cannot accurately predict a number of factors, such as shifts in the global economy or political events. Even though these automated tools are supposed to be extremely efficient, investors could still benefit from the experience and the gut feeling of a real advisor.

How Can Independent Registered Investment Advisors Adapt?
According to the Independent Advisor Outlook Study conducted by Schwab in 2014, independent investment advisors mostly cater to clients who are already retired or approaching retirement. As these clients bequeath their assets to the younger generation, independent RIAs will need to work harder to convince these younger, more tech-savvy clients that sticking with their services is the way to go.  One advantage RIAs have over robo-advisors is the “personal touch” that comes with years of experience managing a family’s wealth, but that will not likely be enough to convince some younger investors to stay. While the rise of robo-advisors may seem like an insurmountable challenge, the Schwab study also found that 40% of advisors surveyed are looking at the transfer of wealth to the next generation as a business opportunity, to develop new models tailored to smaller accounts and younger clients.

Independent advisors understand that their emerging clients belong to a generation that uses the Internet to find information and make decisions, and that many or most of these clients probably feel comfortable relying on software to manage their investment accounts. The business opportunity is in mixing that new technology – the automation of certain transactions or using more algorithms to make investment decisions – with the real-life experience human advisors bring to the table. Rather than seeing robo-advisors as a threat, independent RIAs should look for ways to take advantage of the trend in order to create a better investment experience for all of their clients.

Carlos Coutin is Financial Services Technology Strategist at Envision Consulting, He is passionate about RIAs and entrepreneurship, something that led him in his quest to advice people like him, who want to make the best possible tech decisions without stress and with intelligence. Visit his website at You can email Carlos at: and follow him on Twitter @carlos_coutin.
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