The Rise of the Robo Advisor
Robo advisors made of increasingly sophisticated computer algorithms are now performing many money management services that previously required human intervention.
The reasons for their growing popularity are many. Computer programs are really good at:
- Computing large datasets
- Categorizing securities
- Detecting and reacting to market changes
- Executing tasks based on strategies
- Being consistent and predictable
Having said that, they are not good at everything.
The human touch
Robo advisors do not replace the human advisor when it comes down to the human touch. They can't provide a warm relationship to another person, because robots have no empathy or emotions.
From a legal perspective, they cannot be entrusted with fiduciary responsibilities. At least not yet.
In 2016, we think it is about to change as Congress is toying with the idea of elevating robo advisors to a fiduciary level of care. If this happens, it may impact severely the business of the commission-based advisor. At least in the short term.
Change brings opportunities
Those who embrace robo advisors now may get a leg up on those who resist change. If Congress passes the controversial bill, the financial advisor landscape will change significantly.
It will reduce the client bases of many advisors in short order and the services offered will need to change. The successful advisor will integrate robo advisory technology into his practice and focus on the human touch. Technology will free him to focus on the human aspect of financial planning. It will help him demonstrate to his clients how technology can help them reach their financial goals.