Robo-advisors are an incredible fintech resource, but their use must be balanced with a human touch. The robust data processing provided by robo-advisors paired with human expertise provides clients with a holistic advisory experience. While robo-advisors have historically raised red flags for traditional advisors, most financial professionals recognize that technology largely complements an advisor’s involvement. The hybrid advisor approach elevates the financial advisor experience, helps customers reach desired outcomes, and makes communication and data gathering more efficient.
Robo-advisors will not replace traditional advisors. They will add a data layer that creates more client security and certainty. Both advisors and clients can benefit from having it both ways. Advisors can lean on technology for number crunching, real-time data, and algorithmic advantages. Clients can have easy access at their fingertips and a dedicated human resource.
What Is a Robo-Advisor?
Robo-advisors are hyper-quick logical systems for financial advisors and their clients. They are built on the work and expertise of established investment advisors and powered by real-time data.
While many get caught up in concerns about sentient AI and what it means for the world, it’s more beneficial to understand the true purpose and function of robo-advisors. When leveraged properly, robo-advisors can improve processes and business outcomes.
When clients use a robo-advisor, it starts with a standard questionnaire that evaluates their risk tolerance, investment needs, and goals. Automatically, the robo-advisor generates a diversified portfolio that investment experts helped to create. The portfolio is then continually rebalanced by an algorithm, adjusting for market conditions, something that investors and advisors had to previously do manually. Through the robo-advisor portal, clients can then log in to check their progress, make any necessary changes or contributions, and continue the journey to reaching their goals.
Why work with a Robo-Advisor?
Investors are drawn to robo-advisors because they are a low-cost solution that helps to manage investment portfolios. The day-to-day management of assets—risk management, reporting, tax-efficient trading, rebalancing, etc.— is done by computers. Some investors are not in favor of working with advisors because of the fee that it costs to retain the services. Boomer investors may be inclined to stick with advisors, but millennials and Gen Z are well aware of the platforms that exist to help them manage their investments. Robo-advisors can get portfolios up and running in a matter of minutes and use data rather than natural human responses to drive decision making.
What are the downsides of Robo-Advisors?
For wealth managers, integrating robo-advisors into their toolkit comes with its own set of challenges. While these algorithms are designed to streamline processes and minimize risk, they might not always deliver as anticipated. There’s potential for the technology to not align with the sophisticated and dynamic strategies experienced wealth managers deploy.
As a wealth manager’s client portfolio grows in complexity and diversity, the limitations of robo-advisors become evident. They might not be equipped to consider all investment options, potentially hindering a manager’s ability to provide tailored advice. Additionally, the inherent lack of human touch in robo-advisory services can create challenges in establishing trust and rapport with clients.
For the clients, particularly the younger generation, robo-advisors appear as an attractive option for achieving simple, singular goals. However, as their financial aspirations expand and become more intricate, the confines of robo-advisory platforms can become limiting. While they are built to minimize risks, unforeseen adverse effects can still arise. As clients mature and their portfolios expand, a human advisor’s personal touch and comprehensive guidance may become invaluable, underscoring the limitations of purely algorithm-driven advice.
Balancing Robo-Advisors and Human Expertise
Qdeck believes that humans and technology are equally important in the fintech future, and that neither should be discarded or overlooked. One cannot exist without the other when it comes to long-term success. Humans are ultimately the ones building the technology and the algorithms, and the human mind’s understanding of advising will be crucial to train good robo-advisors. The ideal state is one in which wealth advisors can leverage robo-advisors to improve the overall experience for their customers. Together, an automated portfolio will still be created, and professional advisors will have the oversight to manage the robo-advisors, kind of like an associate.
Wealth managers who use robo-advisors will gain insight into how competitors present investment opportunities to clients. More importantly, however, they will control their clients’ investments, embracing the new technology but maintaining the critical human lens. Because advisors are both numbers-driven and relationship-driven, they find Qdeck conducive to their existing workflows and are partial to its easy-to-use features. One of the bonuses of Qdeck is that robo-advisors can be white labeled, so instead of interacting with a big-name brand, it can be far more personalized.
Embracing this dual approach, advisors fortify trust, laying the groundwork for sustained wealth accumulation. While robo-advisors serve the developing needs of newer, tech-savvy investors, the intricacies of long-term goals demand the discernment only human expertise can offer. As technology propels investment strategies of emerging generations, the harmonious pairing of algorithms and intuition is crucial.
