Can a Robo Advisor Ever Be as Good as a Real Financial Consultant?

Human vs artificial intelligence concept. Business job applicant man competing with cartoon robots sitting in line for a job interview
14 Dec 2018

Here’s the truth: Robo advisor performance will never match what a real financial consultant can do. Learn the difference and the impact it makes on your ROI.

Robo-advisors are disrupting the fintech industry. Currently, the global value of assets under management by robo-advisors is approximately $1.5 trillion. Financial experts predict that it will reach a whopping $4 trillion in 2019 and $8.1 trillion by 2020.

This new technology has changed the concept of wealth management. Increasingly more banks and finance companies are switching to robo-advisors to build and manage customers’ investment portfolios.

Compared to human advisors, this digital solution costs significantly less, making it suitable for investors who are just getting started. You can now leverage the power of automation and employ complex algorithms to manage and optimize your financial assets.

Robo advisor performance has improved a lot over the past years. However, this technology isn’t perfect. Despite its obvious advantages, it still doesn’t compare to what a real financial consultant can do.

What Is a Robot-Advisor?

In this digital era, investors are seeking quick, effective solutions to manage their portfolios. That’s where robo-advisors come in.

This type of online software provides access to an automated investment platform.

All you need to do is sign up and answer a few questions related to your financial goals, risk tolerance, and other areas of interest. Next, you’ll be presented with a diversified portfolio that suits your needs.

A robo-advisor provides wealth management services that are similar to those offered by financial planners, but at a lower cost. These may include:

  • External portfolio analysis
  • Portfolio tracking
  • Whitelisting
  • Tax loss harvesting
  • Automated reinvesting
  • Cash optimization
  • Investment advice

Currently, there are over 100 robo-advisors, and each has distinctive features. Wells Fargo’s Intuitive Investor, Personal Capital, Wealthfront, and Betterment are just a few examples.

Robo Advisor Performance and Advantages

This technology uses cutting-edge software and advanced computer algorithms to manage financial assets. Everything is done automatically, which helps eliminate human error.

Unlike an actual financial advisor, the platform offers low or no minimums and reduced costs. You can start building your portfolio within minutes. This may seem like an ideal option for investors looking to save time and money.

Human advisors charge between $200 and $400 per hour or around one percent of your balance per year.

Most robo-advisors, by comparison, only charge 0.25 percent to 0.50 percent of your annual balance. But are these cost savings really worth it?

Are There Any Drawbacks?

Even though robo-advisors make everything a lot easier, they’re far from perfect.

Since the entire process is automated, you can’t choose your own investments. With a few exceptions, most platforms offer a limited selection of exchange-traded funds (ETFs). This can restrict your freedom and investment opportunities.

Another drawback is the lack of human interaction.

While you can set financial goals through the platform, it’s not the same thing as discussing with an actual person. You may have multiple goals or financial concerns that robo-advisors won’t take into consideration when managing your portfolio.

This technology works best for those with a single, specific investment goal. However, if you’re interested in estate planning and more complex services, reach out to a human advisor.

Additionally, a computer program may not perform well during a down market or deal with a wider range of asset classes.

Maximize Your Investments the Smart Way

Robo advisor performance is still behind what a real financial consultant can do. This technology eliminates the human factor, which may not necessarily benefit you. There is no constructive feedback, no face-to-face meetings, and no personalized advice.

Online investment services lack the personal touch that traditional financial planners can bring.

Even though this technology has its perks, there are times when you prefer to discuss with an actual person, diversify your portfolio, or make more complex decisions. A robo-advisor cannot do these things.

If you’re ready to build or improve your portfolio, we can help. Our team of experts provides investment management services tailored to each client’s specific needs. Contact us today to find out more!


Daryl Seaton