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Technology is rapidly advancing in many fields, and financial advice is no exception. Whilst it used to be the case that professional human advisers were the sole option available to clients, in recent years we have seen new investment platforms enter the stage. Here, the claim is that these software solutions allow people to manage their own investments, more easily and cheaply compared to a human financial adviser. However, is this really the case?
As financial advisers here at Cedar House, we don’t want to be seen as railing against the progress and value of advances in technology. Indeed, there are many amazing algorithms and programmes which we use here, to help clients understand their cash flow modelling and provide evidence-based recommendations for their financial plan. However, we do also believe that there are many areas where “robo” financial advice cannot match the value provided by a human financial adviser.
Before running to the nearing investment platform and attempting to devise your own intricate, cohesive financial plan yourself, consider the following:
Computer programmes used on investment platforms might be able to show you the past performance of particular investments or funds. However, these technologies are still relatively new and have not built up the much-needed performance records to be completely trustworthy. Even if they do build up sufficient history, past performance does not guarantee future results. Algorithms can still be misled or unable to deal with unknowns.
Indeed, this was an important reason behind the downfall of Long-Term Capital Management, which used a Black-Scholes algorithm to ill-effect. On the other hand, many human financial advisers have the benefit of decades of experience behind them, coupled with the ability to help you analyse a fund’s fundamentals to help you avoid unnecessary risk.
An online investment platform might be able to offer you a “DIY” solution to your investment portfolio. However, such solutions are still miles away from being able to help people integrate the different areas of their financial plan into a cohesive whole. For instance, does your investment strategy tie in with your retirement strategy and inheritance tax plan? What about your mortgage and protection plans? Programmes can admittedly be very powerful at helping you in certain individual areas, but a human financial adviser can help you bring everything together – avoiding common blind spots or wasteful overlap.
Most robo-advice solutions tend to offer people a selection of pre-set investment portfolios to choose from. After answering a series of questions about your financial goals and risk tolerance, the programme might then recommend one of these templates to you. Whilst this can be an acceptable approach for some people, many others would miss out from the rewards offered through a more tailored solution. This kind of financial planning, however, is only realistically attained through in-depth conversations and strengthening relationship with a human financial adviser. Such a professional can listen to your distinct tastes, challenges and goals and then craft a bespoke plan for your particular situation. A robo-adviser is limited to pre-set models.
Artificial intelligence is still a long way away from providing the kind of personal relationships which humans can forge between one another. It might feel like you have a close bond with your Alexa device, Google Home or Apple Homepod, but we bet it can’t reassure you or advise you in the way that a trusted friend or relative can!
When it comes to matters of money and wealth, many people seek financial advice not only to help them navigate the technical details of financial planning, but also the emotional aspects as well. When your investment portfolio is affected by high market volatility or even a financial crisis, for instance, an experienced human adviser can provide the necessary wisdom and reassurance you need to help prevent impulsive, damaging decisions. A robo adviser is mostly limited to offering its spreadsheets, graphs and FAQs section on its website.
When you sign up to a DIY investment platform, you are taking primary responsibility for your investment choices and strategy. Many people are capable of holding themselves accountable for meeting the goals they established for themselves during this process, but it is admittedly very difficult.
In most areas of life, however, real results tend to come when we are accountable to others. We tend to keep our homes tidier when we know another inhabitant (e.g. our spouse) will pick us up on mess left around the house. We tend to work harder in the office when we know our boss or peers will regularly speak to us about how our tasks are progressing. The same dynamic tends to hold true for investment and financial planning. Whilst a computer programme or robo adviser can send you scheduled calendar reminders about your investments, a human adviser can bring that extra level of accountability you need to help ensure everything stays on track and up-to-date with the completion of necessary tasks.
If you would like to discuss your financial plan with a member of our team, then get in touch today to arrange a free consultation: 020 8366 4400 or firstname.lastname@example.org.