Robo Advisor vs. Financial Advisor

A big topic of conversation these days seems to revolve around the possibilities of Artificial Intelligence’ (AI)’ and Robotics.

Autonomous cars are front and center, with several tech companies falling all over themselves to be the first to mass market driverless cars.  Smart Phones are no longer the next big thing, but part of our everyday lives, even though we depend on our children and grandchildren to help us operate and maintain.

In the investment world, the ‘fintechies’ (financial technologists) want us to believe that a ‘Robo Advisor’ can and will replace a Professional Financial Advisor.

Professional vs. Programmed Portfolio Management

A robo-advisor is essentially programmed (passive) portfolio management  based on generic goals and risk profiles.  A true professional financial advisor can provide active and customized portfolio management, provide securities advice, as well as address such issues as estate and retirement planning, cash-flow management, social security analysis and more.

Robo-advisors may serve a purpose for younger accumulators, tech-savvy Millennials and DIY investors, but not so for those who are thinking of, planning for, or in retirement.

Case in Point

By way of example, let me tell you a story:

Joe & Mary (names have been changed to protect privacy) have been Financial Planning & Portfolio Management clients for over 20 years.  About 10 years ago, Mary at age 70 was diagnosed with early stage Alzheimer’s disease.  Joe age 71 was still working part time and hoped to do so for a few more years.  We met to develop a plan that would solidify their cash flow so that Mary could receive the proper medical treatment she would need.  This included making some tweaks to their modest portfolio.  Joe was very concerned how to make the portfolio last longer than he and Mary.

As time went on, Mary slowly lost her memory and cognitive abilities.  Joe and I had many conversations, some about money, some about how things were going, and sometimes just to talk about other important stuff, like how his Oregon State Beavers were doing at the college world series.

When Joe turned 75 he decided it was time to fully retire. Over the years, Joe and I had made plans to be ready when the inevitable came to pass. Mary was continuing to decline in health, but Joe wanted to keep her home as long as he would be able to take care of her.  We made additional adjustments to his portfolio so that it would keep up with the added financial pressures.  Market volatility is always a concern, especially to retirees, so our job was to constantly monitor the markets and adjust as dictated by training and experience, as well as my personal understanding of Joe and Mary’s position.

As time went by, Joe and I discussed the importance of keeping his Estate Plan up to date.  We also discussed that it would be a good idea to start including his daughter, Marcia, into the conversations so that she was aware of everything in the event she ever had to step in and help.

Then, life went completely off the rails for Joe and Mary.  Joe was diagnosed with terminal cancer and given 6 months to live. Marcia and Joe met with me to review the entire financial picture, as well as the Estate Plan that we had just updated.

Sadly, it was agreed that Joe and Mary needed to go into Assisted Living.  Mary now needed Memory Care and could no longer live with Joe.  They needed to clean out their house of 40 years and sell it.  Painful for everyone, but it had to be done.

Joe, Marcia and I discussed how to make sure that Joe and Mary could handle the $10,000 per month for Assisted Living and Memory Care.  We put a plan together that included filing a claim against Mary’s Long Term Care Policy, along with using the cash from the sale of the house, as well as some cash available from Joe’s life insurance policy.

Financially it all came together very nicely, and Joe and Mary, while in the twilight of their years, can at least have the satisfaction of knowing that their financial life is in good order and that they will not be a financial burden to their children.

How would Artificial Intelligence have helped Joe & Mary?  Could they talk to the “App” to discuss how best to handle this critical situation?  Would the App have provided moral support or guidance?

My belief is that better outcomes happen when the Trained Professional can apply his energy and wisdom and let the computers take care of the data management.  Better outcomes happen when the Artificial Intelligence acts in a supportive role to the human element, not the primary role.

Ask yourself this series of questions on Robo vs. Trained Professional:

  • Would you hire a Robo Doctor or Dentist?
  • Would you hire a Robo Lawyer?
  • How about a Robo Landscaper?

Then why hire a Robot to plan and manage your future?