Whether you view technology as a great salve to ease society’s woes or as a foreboding harbinger of digital destruction, there’s no getting around the fact that innovation is completely woven into nearly every aspect of our lives. From an investor’s perspective, the impact of technology is most clearly demonstrated through the recent and rapid growth of robo-advising platforms.

What Is Robo-Advising?

While it might sound like a plot point in a science fiction movie, robo-advising is actually a simple and straightforward concept. At its core, robo-advising is automating the allocation and maintenance of your investment accounts according to different algorithms as well as your own goals and personal levels of risk tolerance.

The Benefits of Robo-Advising

Like most instances of automated processes that used to be accomplished by human beings, robo-advising was designed to take advantage of the computing power that drives the investment algorithms as well as the elimination of human error. In fact, think of a robo-advising platform like an automated assembly line in an automobile factory. While human beings worked on those lines for decades and became extremely reliable and efficient, they were still susceptible to the dangers of human error.

Robo-advising is much like that automated assembly line, becoming even more reliable and efficient than the financial professional that might have previously allocated your investments by hand. No matter how seasoned that professional was, there was still room for mistakes by failing to reallocate your accounts on a frequent basis or miss something entirely. Robo-advising takes those instances completely out of the equation.

Drawbacks of Robo-Advising

Given the emotions that are often intertwined with your hard-earned money, investing will always be a human endeavor that benefits from the financial, emotional, or even psychological guidance of a trusted financial professional. An algorithm – as fast and efficient as it might be – doesn’t understand how important it is to you to send your kids to college or travel the world with your spouse upon retirement.

Robo-Advising Doesn’t Replace the Human Touch

Robo-advising platforms, at least in their most impactful and beneficial applications, are not meant to completely replace a much-needed sense of humanity throughout the investment process. Instead, robo-advising platforms should be used to make the investment process more reliable and efficient, therefore freeing up more time from your investment professional’s perspective to provide more opportunity to interact with you, their client. More concisely, robo-advising works best when working in conjunction with your financial professional to provide you the best of both worlds.

 

2/4/2019