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Today, online transactions are so prevalent that it’s hard to imagine a financial life without them. How would we buy an airline ticket, transfer money between accounts, book a vacation, pay bills, or keep track of expenses without internet connectivity?
But there’s one area in which consumers seem to prefer a human encounter to computer clicks. The acceptance of robo-advisors — online software that allows clients to manage investments — once ballyhooed as the next major trend, has been slow to catch fire. Some observers say that only one-half of 1 percent of assets under management are enrolled in such arrangements, and that the number will only increase to 2 percent by 2022. We at Coral Gables Trust Company know there are many good reasons for that.
Let’s be clear: there are situations in which robo-advisors , or plug-and-play programs, can be very useful. For the young investor just getting started, they can be an effective, affordable solution, because fees are generally lower than those a professional wealth advisor would charge. Too, some beginning investors haven’t amassed the asset threshold that larger wealth-management companies require. Passive investment alternatives such as indexed mutual funds and exchanged-traded funds can be a step in the right direction.
We’re not anti-tech: we integrate the latest technical advances and very robust financial planning tools to bring down costs and make us more responsive. The best approach is to combine appropriate technology with human interaction and expertise.
But it’s undeniable that, as our clients acquire assets, their financial affairs increase in complexity. That’s where more advice and guidance begins to come into play. We know that wealth management is a living, breathing process. We work as a team with the client’s accountant, attorney, and insurance broker to present a holistic approach — something a robo-advisor can’t do.
We also help clients plan for the changes that every life brings, both good and bad. The birth of a child, the sale of a business, illness, disability: each of these brings material changes. A true wealth manager is there to help clients prepare and adapt for the unexpected, as well as for the inevitable. We recalibrate as often as the client’s needs dictate.
Another significant disadvantage of the computerized approach is that robo-advisors haven’t been significantly tested. Most have been around fewer than 10 years, in the booming market since the financial recovery from the 2008 crisis. What if we were to have a significant market correction, something on the order of 25 percent? Would the robo-advisor be able to successfully advise the client not to panic, not to sell? There is a lack of sophistication in many of these programs.
If a client is selling a business, would the robo-advisor be competent to advise about potential tax consequences? These are some of the ways that real-world experience becomes extremely valuable. We know there is such a thing as a psychology of wealth, and that having a professional team to manage all aspects of your financial planning can be crucial to helping you achieve your goals.