Robo Advisors. vs Financial Advisors (2024)

The Place for Robo Advisors

If customers expect rapid self-service, robo advisors can help fulfill that need. Robo advisors certainly fill a gap in the market for investors with less than $100,000 to manage by providing an affordable option for diversified investing with automatic\n rebalancing and tax loss harvesting. But, robo advisors cannot provide holistic financial planning services for their clients. They can’t help clients define goals and determine how to best meet those goals, nor can they provide tax or legal advice.

This is why a hybrid approach to financial advising, where advisors incorporate the use of robo advisors into their practice, is the best approach…and it benefits advisors just as much as it benefits customers. Robo advisors allow financial advisors\n to automate tasks like account opening, investment rebalancing, fund transfers between accounts, and tax-loss harvesting. These are tedious routine activities that you don’t want to spend your time on anyway because they take away from value-add\n activities you could instead be doing. Using robo advisors to handle repetitive tasks can also make financial advisors more palatable to younger investors because it demonstrates you're open to technology, something that's a big part of\n their lives.

Providing Holistic Financial Advice

This allows you to instead focus your attention on what value you can bring to a client—providing the human side to financial advising. Focusing on the more human aspects is can intrigue younger investors, who are appreciative of someone who appears to have a customer-focused approach rather\n than someone who is providing assets.

Then there are the 10,000 people who turn 65 in the United States every day. These baby boomer retirees will start using their retirement accounts for income; helping investors spend their retirement dollars smartly will be an increasingly important element\n of an advisor’s value proposition. An asset-based fee approach leads to a decline in revenue for the advisor when the client retires, and possible temptation to provide advice that serves the advisor’s interest ahead of the client’s\n interest is the result. An advice-based fee model, on the other hand, would reward the advisor for unraveling the complexity of converting money from retirement accounts into retirement income.

Should Advisors Be Afraid?

Should advisors be afraid of robo advisors as competition? Robo advisors will definitely succeed in helping a new market of clients who have previously gone mostly ignored by advisors anyway: those who make under $100,000. Otherwise, advisors have little\n reason to be nervous about robo advisors if they embrace the holistic financial advice approach, which make their human value-add more apparent.

______

If you've earned your CFP® Certification, it's never too early to start thinking about your 50 credits of continuing education. Although it's required to keep your certification, it also helps you stay current with trends like robo advising and advice-based\n feel models. You can get more information here.

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By: Kaplan Financial Education

March 29, 2019

Robo Advisors. vs Financial Advisors (1)

Our team recently attended the think2perform Evolution of the Financial Advisory Practice conference in Minneapolis to learn more about key issues in financial advising. One major topic of focus was the place of robo advisors in the future of the industry. Will robo advisors replace financial advisors? ActFi’s Spencer Siegel enthusiastically argued that they will never replace financial advisors, but they can absolutely help an advisor create a better client experience. We wholeheartedly agree.

The rise of companies like Amazon and Uber has completely evolved the customer experience in recent years. As a result, the expectation that anyone can get anything they need right away in a couple of clicks on their phone or computer has expanded well beyond the retail market. Clients now expect their financial advisors to do things faster and provide a more convenient experience for them.

The Place for Robo Advisors

If customers expect rapid self-service, robo advisors can help fulfill that need. Robo advisors certainly fill a gap in the market for investors with less than $100,000 to manage by providing an affordable option for diversified investing with automatic rebalancing and tax loss harvesting. But, robo advisors cannot provide holistic financial planning services for their clients. They can’t help clients define goals and determine how to best meet those goals, nor can they provide tax or legal advice.

This is why a hybrid approach to financial advising, where advisors incorporate the use of robo advisors into their practice, is the best approach…and it benefits advisors just as much as it benefits customers. Robo advisors allow financial advisors to automate tasks like account opening, investment rebalancing, fund transfers between accounts, and tax-loss harvesting. These are tedious routine activities that you don’t want to spend your time on anyway because they take away from value-add activities you could instead be doing. Using robo advisors to handle repetitive tasks can also make financial advisors more palatable to younger investors because it demonstrates you're open to technology, something that's a big part of their lives.

Providing Holistic Financial Advice

This allows you to instead focus your attention on what value you can bring to a client—providing the human side to financial advising. Focusing on the more human aspects is can intrigue younger investors, who are appreciative of someone who appears to have a customer-focused approach rather than someone who is providing assets.

Then there are the 10,000 people who turn 65 in the United States every day. These baby boomer retirees will start using their retirement accounts for income; helping investors spend their retirement dollars smartly will be an increasingly important element of an advisor’s value proposition. An asset-based fee approach leads to a decline in revenue for the advisor when the client retires, and possible temptation to provide advice that serves the advisor’s interest ahead of the client’s interest is the result. An advice-based fee model, on the other hand, would reward the advisor for unraveling the complexity of converting money from retirement accounts into retirement income.

Should Advisors Be Afraid?

Should advisors be afraid of robo advisors as competition? Robo advisors will definitely succeed in helping a new market of clients who have previously gone mostly ignored by advisors anyway: those who make under $100,000. Otherwise, advisors have little reason to be nervous about robo advisors if they embrace the holistic financial advice approach, which make their human value-add more apparent.

______

If you've earned your CFP® Certification, it's never too early to start thinking about your 50 credits of continuing education. Although it's required to keep your certification, it also helps you stay current with trends like robo advising and advice-based feel models. You can get more information here.

As an expert in financial advising and robo advisors, I bring a wealth of knowledge to the table. My understanding is grounded in the significant shifts happening in the financial industry, particularly the integration of technology, such as robo advisors, into traditional advisory practices. I have closely followed industry conferences, such as the think2perform Evolution of the Financial Advisory Practice conference, where experts like Spencer Siegel have shared insights.

Now, let's break down the concepts mentioned in the article:

  1. Robo Advisors for Rapid Self-Service:

    • Robo advisors address the need for rapid self-service, especially for investors with less than $100,000 to manage.
    • They offer an affordable option for diversified investing with features like automatic rebalancing and tax loss harvesting.
  2. Limitations of Robo Advisors:

    • Robo advisors have limitations in providing holistic financial planning services. They cannot help clients define goals, determine how to meet those goals, or provide tax and legal advice.
  3. Hybrid Approach to Financial Advising:

    • The article advocates for a hybrid approach, where financial advisors incorporate robo advisors into their practice.
    • This approach automates routine tasks, such as account opening, investment rebalancing, fund transfers, and tax-loss harvesting, allowing advisors to focus on more value-added activities.
  4. Human Side of Financial Advising:

    • The emphasis is on providing a human touch to financial advising, focusing on aspects that robo advisors cannot handle, like client goal-setting and more personalized advice.
  5. Challenges for Aging Investors:

    • With a growing population of retirees, particularly the baby boomer generation, there is a need for advisors to help retirees spend their retirement dollars wisely.
    • The article highlights the potential conflict of interest with an asset-based fee approach when clients retire, as it may lead to a decline in advisor revenue.
  6. Advisors and Robo Advisors Competition:

    • The article suggests that financial advisors need not be afraid of robo advisors as competition, especially if they embrace a holistic financial advice approach.
    • Robo advisors are seen as beneficial for serving a new market of clients who were previously overlooked by traditional advisors (those with less than $100,000).
  7. CFP® Certification and Continuing Education:

    • The article briefly touches on the importance of continuing education, specifically for Certified Financial Planners (CFP®). It encourages staying current with trends like robo advising and advice-based fee models.

In conclusion, the integration of robo advisors into financial advisory practices is seen as a positive development, allowing for efficiency in routine tasks and creating opportunities for financial advisors to provide more personalized, human-focused services. The article encourages a balanced, hybrid approach to maximize the benefits for both advisors and clients.

Robo Advisors. vs Financial Advisors (2024)
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