The Lowdown on Robo-Advisors

by: Smith and Howard Wealth Management

You may have seen commercials touting the latest trend in financial advising: robo-advisors.  Many investors are wondering whether a robo-advisor might be right for them.  At Smith Howard Wealth Management (“SHWM”), we believe personal financial advisors bring value that no computer can duplicate.  Technology plays an important role in investing and asset management, but we firmly believe no program can replace the value of a dedicated, experienced (human!) wealth management professional.

What is a Robo-Advisor? The term “robo-advisor” describes an emerging type of investment management service.  Robo-advisors are online tools that use automated software to provide users with investment advice.  Customers input information and the computer provides guidance on investing.  In most cases, the customer never interacts with an actual human being and, when interaction does occur, it is rarely face-to-face.

Why Do Our Wealth Advisors Have the Edge?

Why do human advisors have the edge over even the most sophisticated robo-advisor?  It boils down to a three key points:

1. Personalized service – Robo-advisors see clients as simply their investments.  True advisors see more.  Investments are a means to an end, a personal vision of success.  Each vision is unique and valuable whether you want to build a business, leave a financial legacy, or simply spend every day on the golf course.  Robo-advisors will never discuss your hopes, dreams, or concerns and how those affect, or are affected by, your wealth.  In contrast, we meet with you, ask questions, listen, and keep up with changes.  SHWM is a boutique firm by design, in part because we value personal relationships.  We take pride in helping you on your journey.

Additionally, many of our clients are active investors.  They want to discuss specific investment ideas.  A robo-advisor can’t do that.

2. Wider services – Robo-advisors select investments for clients.  As trusted financial advisors, we guide our clients through life.  Unlike robo-advisors that always tell clients to invest, we look at the broader picture, helping you decide if you should invest and where.  We help you make the choice that best serves your goals whether that’s investing, purchasing more life insurance, saving for a home, or something else.  Additionally, our experienced advisors always keep estate planning issues in mind.

Even when it comes to investments, human advisors trump robo-advisors.  We offer a wider array of investment options.  We have access to the same type of sophisticated software (in some cases, the exact same software) used by robo-advisors.  The difference is technology supports our expertise, it doesn’t replace it.

Some robo-advisors emphasize specific strategies.  However, these touted strategies only apply to certain forms of investments.  For example, some ads focus on tax loss harvesting, a strategy largely inapplicable to tax-deferred accounts.  A personal advisor can help you select and implement strategies that are appropriate for your portfolio and your goals.

3. Human touch – Computers are becoming increasingly life-like, but there’s a human element they can’t replicate.  We connect with you personally.  Good advisors are financial behavior coaches.  SHWM helps clients address behaviors that interfere with their goals such as overspending or failing to plan for the unexpected.  We see the whole client, the individual and the family, and provide advice accordingly.

Our professional advisors abide by strict fiduciary standards and strive to avoid conflicts of interest.  Some venture capital-funded robos are rewarded for encouraging certain investments.  Our independent advice is about your best interest, not ours.

We pride ourselves on honesty and keep our clients honest too.  Few deliberately lie, but we make sure they are honest with themselves. A computer can only work with the data provided: “garbage in, garbage out.”  We ensure there’s accurate data and accurate advice.  For example, we help clients examine their spending habits.  This is the number one issue for the average investor who typically underestimates annual spending by half!  We comb through tax returns and ask questions to gain a read on annual spending.  An accurate picture of spending is critical to pinpointing how much money you need to maintain (or enhance!) your lifestyle in retirement.

The Bottom Line

Ultimately, we believe you should work with a human advisor because we can add value.  Recently, Vanguard reviewed the tools used by wealth planners and found an experienced wealth management professional can potentially increase a portfolio’s worth by three percent (Source: Putting a Value on Your Value: Quantifying Vanguard Advisor’s Alpha, March 2014).  Don’t you want to rely on our proven track record of success rather than trust your future to an unproven e-gadget?

Technology is truly amazing and it has an important place in financial advising.  Still, a computer alone cannot replicate the relationship between a client and a financial advisor.

If you have any questions, call your personal SHWM advisor or me at 404-874-6244 to start a relationship with one of our (human!) advisors.

© 2015 Smith and Howard Wealth Management. All Rights Reserved. The content and any portion of this newsletter is for personal use only and may not be reprinted, sold or redistributed without the written consent of Smith and Howard Wealth Management. The information and material contained herein is provided solely for general information purposes. Smith and Howard Wealth Management does not make any warranty or representation relating to the accuracy, completeness, or timeliness of any information contained in the newsletter and shall not be liable for any damages of any kind relating to such information nor as to the legal, regulatory, financial or tax implications of the matters referred herein. This material is not intended to be investment advice nor is this information intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only current as of the stated date of their issue.