David Lerner Associates: The Pros and Cons of Robo-Advisors
A robo-advisor, or automated investment service, is an online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human investment advisors.
Sounds impressive, but what are the benefits versus the drawbacks?
The robo-advisor industry has recently catapulted in growth, raising an incredible $95 million over the course of two weeks last year from venture funding. Yet despite the somewhat astounding amounts of capital flowing into the robo-advisors, the actual amount of revenue involved is still remarkably low, with the companies reaping less than $5M in revenue collectively.
This isn’t to say that this technology should be ignored. There have been many industries that have been disrupted by technology – think Uber and the taxi industry – so this should be a sign to human advisors that they need to evolve to keep up.
There are some 300,000 human advisors who would make a compelling argument that there are facets to personal finance and investment that just can’t be replaced by a computer alone, especially since new robo-advisor firms are popping up, threatening to undercut even the existing robo-advisors by offering investing for free (offering to provide services with no apparent business model at all is certainly a sign of potential trouble.)
Let’s not forget that a computer is a mere tool – a means with which to accomplish astounding things in a fraction of the time it would normally take. But it takes a trained operator to interpret trends, analyze facts, and filter all that data through years of knowledge and experience, not to mention the personal service you get from an advisor.
Robo–advisors may be the answer for some investors who don’t feel the need for that personal service. It may well trim the fat and drive investment advisors to provide better service to their clients. Or perhaps the technology will become just another tool that human advisors use in their quest for the best investment portfolio for their clients.
Either way, the personal service you can get from an experienced advisor who knows you and your investment needs can never be replaced and always be aware that there are risks inherent in investing whether you are dealing with robo-advisors or human advisors
IMPORTANT DISCLOSURES
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
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