Would you take advice from a robot?

I recently visited a wholesale nursery where robots had taken over planting operations. Save time, money and help with scarce labor resources.

In my industry, robotic solutions are also becoming more popular. You may have seen advertisements for low-cost, automated investment advice providers called “roboadvisors.” They are mainstream in the US and on their way to Australia.

Answer a few questions online, enter your login information, and boom! You have an investment allocation commensurate with your age and risk tolerance. For some investors, this is perfectly appropriate. Their situation may be quite simple and they don’t need (or don’t want to pay for) more complex or ongoing advice. The solution is fine for a small single account portfolio.

But not all financial decisions can be made with if-then statements or rules that a computer program can follow. Life is difficult to automate. Some months you take home less and spend more. Sometimes things need repair or you go on vacation. Maybe a job changes, retirement plans change, all of which affect your savings, investments, and retirement plan. It’s hard to imagine a website or app that handles all of these scenarios because the problem isn’t just numbers: it encompasses human behavior, chance, and the hard numbers of cash flow and taxes.

On the other hand, some things are purely numbers. Take portfolio rebalancing, for example: it makes sense to use technology to speed up the task of buying and selling when your investments become unbalanced from your target allocation. However, even when the numbers are straightforward, it helps to have a human touch to override the rules when needed; for example, if certain investments are attractively priced, it might make sense to buy “on sale”, even if the allocation is not exact. A human manager makes sure that the result happens as planned, and that it happens. (Most individual investors don’t rebalance. They don’t like to sell some winners and buy some losers, even if it’s in line with their long-term goals!)

There is no doubt that automated applications and robotic solutions are big drivers of innovation and cost reduction in all industries, not just finance. It makes sense to use the best tools available for the job, like the nursery that can do the job better than one person. The same goes for your hard-earned money. Advisors must use the latest technology, but technology alone is not enough. A person is still needed to guide the operation and provide advice to the “client” based on years of training and experience.

I have seen several articles in industry magazines about the “robotic threat” to advisors. But if an advisor’s only value is making trades that can be done with a lot of ones and zeros, he’s not earning his fee. Instead of seeing robotic solutions as a threat, I see a huge advantage. We enable humans to do what humans are good at: connect on a personal level and use our expertise to help tackle complex challenges.