‘Robo advisors’ and your financial security

They raise questions about the limits of technology and how the financial advice world responds


When it comes to the relentless pace of technological change, there’s little doubt that we are living through a period of
disruptive transformation. Just consider the evolution of personal computers into mobile devices. The giant step from engaging mobile novelty into an indispensable 21st century tool occurred in less than a decade.

These tools are adapting human behavior and, to cite one example, altering the boundaries between the professional and the personal. Far too many Americans take fewer and fewer breaks from work because the information age does not pause — not even for a nanosecond.

In my profession, the trend toward information automation is equally demanding as an underpublicized trend has begun to take hold: the arrival of dozens of Web-based advisory tools, also known as “robo advisors.” This isn’t quite the same as the “Terminator” movies, when machines take control, but it does raise questions about the limits of technology and how the world of advice will respond.

I don’t worry that sage financial counsel will become obsolete or replaced by high-powered algorithms that offer advice without human intuition quite yet. In an increasingly complex and impersonal age, developing and maintaining long-term relationships will become more, not less, vital.

Perhaps an analogy exists in the growth of online medical resources that haveenhanced the engagement between patients and their physicians. Online resources have only made the medical community more responsive to their patients.

When the Internet boom took hold in the 1990s, there were dire predictions that the arrival of online trading would severely undermine the wealth management industry. Everyone was to become their own advisor and broker, and financial advisors were deemed inefficient and profit-draining agents of a bygone era.

The doom-and-gloom chorus had their moment in the spotlight on center stage, until the Internet boom went bust and investors realized that one could not replace sound planning and realistic assessments with technology alone.

Real relationships

Innovative Web-based advising firms and their increasingly sophisticated tools are mostly targeting the tech-savvy millennial generation. Demographically, these millennials are very much do-it-yourself explorers. The rise of the robo advisors will put pressure on wealth managers and financial advisors at many levels to show tangible (and intangible) value to this skeptical and wired younger generation.

The next generation of advisors will need to be a well-educated, increasingly specialized, technologically adept and collaborative. Reverse mentoring (where younger talent engages their older mentors) will become an important practice. It’s an exercise our team embraced as our practice and team grew with my younger colleague, Casey Snyder. Casey and I collaborate on a systematic basis on a wide range of topics.

Cross-generational communication will become an increasingly crucial element for investment professionals and investors as technologies and demographics advance.  Each generation of advisors can “fill in the blanks” of knowledge and insight with the next about digital advances and a crucial understanding of investment process and psychology.

The best wealth managers will embrace the test of algorithmic advice and robo advisors and utilize technology to their full advantage.

Elliott Weissbluth, CEO of the financial services firm HighTower, put it best in a recent CNBC column. “Technology gives advisors the freedom to forge real, lasting, meaningful relationships with their clients, which, much like a doctor’s bedside manner, is a skill that can’t be replicated by a digital solution.”

Tom Sedoric, managing director-investments of the Sedoric Group of Wells Fargo Advisors in Portsmouth, can be reached at 603-430-8000 or thesedoricgroup.com.

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