Robo-Advisors Are Not Robo-Planners. Yet.

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Q2 hedge fund letters, conference, scoops etc


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Over the past 10 years, the financial press has been overflowing with news of robo-advisory services – the early launches, the astonishing asset growth and the threat (or lack thereof) to financial advisors.

Enter robo palooza

When robo-advisors first rolled on to the scene, I was tickled to see someone automate the interrelationship between a client’s ability and willingness to tolerate risk – and then marry the two with a seamlessly allocated (and rebalanced!) investment portfolio.

And then the fees – oh, the fees you save! How could the investing public possibly resist paying 50-80% less than those greedy financial advisors charge? Not to mention the fact that some of those financial advisors were probably allocating to high-cost mutual funds instead of the low-cost ETF nirvana offered by the robos.

I am a huge fan of investment automation. One of my most cherished career roles was spent developing trading algorithms that managed client order flow at a busy broker-dealer. But I also know what it is like to work with individual investors on a one-on-one basis as their portfolio manager. In this role, solutions are highly customized and a great deal of time is spent tailoring the offering to their specific needs.

In looking at robo-advisors fairly, the investing public, who embraces it as a solution, are getting short-changed.

I’m not saying this because I think that, as an industry colleague put it several years ago, robos are just a bunch of “glorified target-dated funds.” I just think the “advisory” moniker is inaccurate.

Where robo-advisors fall short

Clients are best served when provided unbiased, unconflicted and complete advice delivered by a well-qualified fiduciary (a professional required to place the client’s interests ahead of his/her own). Robos (notwithstanding high mandatory cash holdings at some) do deliver on some – but not all – of that value proposition. They are investment advisors only.

Here is the bigger issue: Investment management is not financial planning.

A family cannot button up their entire financial well-being via a 15-minute online survey and a couple online signatures. Proper and complete financial planning must take into account a myriad of other questions such as:

  • What do we keep? (Taxes)
  • When do we protect it? (Insurance)
  • Where does it all end up? (Estate)
  • How do we get there? (Integrated Plan)

Robo-advisors fail to answer the four critical questions above – mainly because it is first and foremost an investment management solution.

I challenge you to find someone served completely by a robo-advisor. I’ll even provide you a few examples:


Read the full article here by Carl A. Friedrich, Advisor Perspectives


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