At Premier Financial Group, we understand that investors have many choices when it comes to selecting the right financial advisor for their needs. In recent years, the choices available to investors have increased with the advent of the so-called robo-advisors.
Just as the travel industry has changed -- thanks to the proliferation of do-it-yourself online booking sites -- and traditional bank teller duties have been taken over by automated tellers, the financial services industry is changing, as well. Robo-advisors, or investment firms that offerportfolio management services over the internet, with little to no human interaction.
Here's what you need to know about this new industry trend so you can decide if it's right for you.
Online Investment Guidance: Is it a Feasible Wealth Planning Solution?
First, let's define the term "robo-advisor." What, exactly, is this futuristic-sounding concept? In a nutshell, a robo-advisor is an investment firm that provides portfolio management services online. When you use such a service, you'll likely interact with a real, live investment professional rarely, if at all.
Instead, this type of investment firm uses a series of model portfolios and calculated algorithms to allocate your assets. This type of automated investing is based on computer models that take your risk tolerance and objectives into account... but nothing more. The types of services you'd expect to see in a more traditional wealth management advisor's office, like comprehensive financial planning, estate planning, investment guidance and holistic wealth management aren't part of the robo-advisor's repertoire.
Rather, you should expect to receive a diversified portfolio. That's it.
The Advantages of a Robo Investment Firm?
Given the extremely limited scope of financial services that automated advisors provide, the next logical question is, why would anyone let a computer design their portfolio? A few potential "pros" may include:
- Low minimums
- Investors with very simple financial situations
- Investors who are extremely hands-off
- Investors who deeply trust automated online investment tools
However, for investors who like to be involved in the financial planning process and stay in the loop the robo-advisor might not be a great fit. Investors who have involved retirement planning, estate planning, or other personal wealth management needs generally want a personal relationship with their advisor. And for those investors who seek asset management solutions beyond just a simple, diversified portfolio, robo-advisors won't offer the kind of comprehensive financial planning services they are looking for.