A decade or so ago, not many people had heard of robo-advisors. Fast forward to today and that has most likely changed. Robo-advisors are becoming quite popular among millennials, new investors, and seasoned investors alike. It begs the question, therefore; will robo-advisors replace financial advisors in the future?
One reason robo-advisors may replace humans for some investors is due to the low minimum investment amounts they require. The minimum investment amounts required by traditional investment firms are usually higher than that of robo-advisors. This is causing an increase in the use of robo-advisors over their human counterparts. Additionally, those same low minimum deposit requirements are making robo-advisors available to investors who are unable to meet the higher requirements of traditional investment companies. This is likely causing an increase in the number of people investing overall.
Because robo-advisors take the human element out of investing they can provide financial knowledge for more people at a reduced cost. This may eventually cause a reduction in fees from investment firms who are trying to induce clients to use their services rather than that of another firm or robo-advisor.
When you want to maximize your investments you occasionally have to rebalance them. If you are investing with the help of a human investment advisor, that person has to decide to rebalance your investments. If they have several other clients in addition to you, they may not get to yours as quickly which could result in some losses in your portfolio. They will also charge you a fee for this service. When you use a robo-advisor instead, rebalancing occurs automatically without the wait. This ensures your investments remain diversified to your needs and expectations.
Ease of Use
Robo-advisors are easier to use than a traditional investment advisor. You can check your investments through multiple electronic devices. If you are away from home or work and want to know how your portfolio is performing, the touch of a few buttons on your smartphone app can give you that information. If you are using a human advisor, however, you may not have the same instant access.
Everyone is busy these days and some people simply lack the time to meet with a human investment advisor on a regular basis. Using a Robo-advisor instead can help. They do some of the investment work for you saving you time and hassle.
Many investors remain loyal to their human financial advisors. However, some of those advisors don’t deserve that loyalty. They attempt to direct their investors toward funds and products that offer financial incentives to themselves. As a result, the funds their clients invest in are not in their own best interest and may not provide optimum returns.
Of course, not every financial advisor is like that. There are many that work hard in their client’s best interests. In addition, clients like that their human advisors have the ability to help them with their overall financial needs and provide explanations no digital advisor could or would replicate. In addition, human advisors can help them customize their portfolios in ways robo-advisors can’t. According to an article in the Wall Street Journal, most investors are not comfortable trusting an electronic only system of investing.
So, will robo-advisors replace financial advisors at some point? I think the answer is not entirely. Human advisors will most likely continue to remain in the picture even though their utilization might continue to drop off due to the many advantages of the robo-advisor.
Do you feel that robo-advisors will replace financial advisors?
Kayla is a personal finance blogger in her mid-20s who loves to write about money topics of all kinds.