by Neil Sosler
Automation is changing our world. Robotics has come a long way from powering vacuum cleaners and factory assembly lines. Today it’s revolutionizing everything from driverless cars to robotic surgery in ways undreamed of even a decade ago.
Let’s face it: Robots are much better than we are at analyzing raw data. Financial planners certainly benefit from technology that can process information more efficiently and effectively than ever before. In fact, at Singer Xenos, we employ a host of hi-tech and sophisticated algorithms to compute large swaths of data that can then guide and inform some of our portfolio-building techniques.
But helpful as technology and automation may be at churning out general guides to investment planning, data and analytics only go so far without human perception and cognition to match. Here are five reasons why you might think twice before building your wealth portfolio by iPhone app alone:
Financial education: Knowledge is power. I see half of my job as educating my clients, because an informed investor is more likely to be successful over the long-term. Still not convinced? Try asking a robot to explain why interest rates went up or why the stock market has dropped.
Beyond the algorithm: A robot is great at tax loss harvesting, portfolio building and the like, but what about personal issues such as college savings planning? What if you want to slow down at 60, but not necessarily stop working altogether? There are just some more nuanced life variables that can’t be squeezed into an algorithm.
Deep dive beyond the numbers: A robot can make assumptions and spit out a financial plan based on them, but at some point you need a human to help talk through issues and scenarios that a computer just isn’t designed or equipped to do. Suppose a client wants to know whether he should buy, finance or lease a new car. A robo-adviser will ask the same basic questions a human adviser would: What’s the interest rate? What’s the lease payment? How long do you plan to keep it? But once you get into more personal concerns –– Should you lease the car through your business? What if you want to give it to your son when he turns 16? –– a human financial planner can do a deeper dive that can add value beyond what a robot can provide.
Alternative investments: For the past decade, simple, passive investments allocated in a simple way –– say a 60 equity/40 bond allocation –– have done well, but as interest rates rise which causes the value of bonds to fall, this simple mix won’t cut it. Since the robo-environment is based on past performance, it’s inherently backward looking. What worked over the past 30 years won’t necessarily work in the future. As financial planners, we work hard to find interesting, non-correlated investments that are outside the box –– something that will be even more crucial as the market changes.
Financial Therapist: What will you do when the market does have a bad patch –– cry on your robot’s shoulder? Sometimes people need to know everything will be okay in the long run. Empathy is something robots just don’t get.