Can Robo Advisor Complete Replace Financial Advisor?
Robo advisor is considering the future of financial services by their fans, but can computer algorithm really replace human financial advisor? Robo advisor is less expensive than traditional advisor so, many financial companies are threatening to steal customers from traditional advisors while also helps in the growth of wealth management and financial management sector. When you truly look closer to the difference between Robo advisor and human financial advisor then you feel that Robo-advisor could never truly replace human financial advisor.
How Do Robo-Advisor Work?
Unlike human financial advisor, Robo-advisor uses digital platform that uses an automated algorithm to provide investment advice. You will typically guide through an online questionnaire to determine risk tolerance. An investor fills the online form by detailing their current financial situations, monetary goals, and financial preferences. Then Robo-advisor analyzes the user data and dispenses the investment advice accordingly.
Advantage of Robo-Advisor:
· Automation: Robo advisor is good at ongoing automated tasks such as tax loss harvesting and portfolio rebalancing.
· Transparency: Services is available 24*7 hour with an easy sign-up process and powerful analytics software.
· Lower Costs: Robo-advisor cost a lesser amount than a human financial advisor. They build portfolio using low-cost mutual funds.
· Lower Barrier: Most financial advisor requires a minimum investment of $100000 or more to open an account while Robo-advisor requires minimum as zero.
Disadvantage of Robo-Advisor:
· You can’t choose your own investments: If you’re an investor who seeking an extremely diversified portfolio for investment choice, then you might not a good candidate for the Robo-advisor.
· Frequent Rebalancing might Hurt you: All Robo advisor rebalance your account. When you start investing, the digital advisor assesses your risk comfort and then creates an asset allocation plan. Some Robo advisor rebalances daily, other monthly, quarterly or other frequency. Excessively rebalancing causes many transactions and the high fee which might disturb your expenses.
· Limited Contact Method and Hours: Many Robo-advisor offer e-mails, text contact, and chat box. Other have limited phone hours and some Robo advisor isn’t accessible on weekends which is a problem for the person who works during weekdays and attends investment only on weekends.
Following reason which confirms that Robo-advisor can’t completely replace the human financial advisor:
· Money is an Emotional Matter: Human advisor’s ability to provide emotional guidance. By meeting clients face to face they allow us to provide better behavioral coaching and hand holding. They also help us in developing positive budgeting and wealth management habits that lead to long term financial security.
Unique Financial Situation: Human financial advisor provides personalized counseling and guidance to help the client in long term financial success. While Robo-advisor not able to personalize as it based on a computer algorithm to determine assets allocation.
· It’s More than Just Investment: Robo-advisor only provide portfolio rebalancing and tax loss harvesting but they don’t provide complete service that human financial advisor offer. The human financial advisor offers innumerable strategies that consider changing life circumstances. They provide compressive financial planning which includes estate planning, retirement, insurance and much more.
Let’s Wrapping: Robo-advisor is gaining media attention; they aren’t here to replace the human financial advisor. It is beneficial for beginner investors with limited assets, but they lack the full range of financial services that would be provided by the human financial advisor. As with any life choice, an investor should figure out what type of investment they require and select a Robo-advisor or human financial advisor to suit his individual style.
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