Kudos to the Robo-Advisors

Kudos to the Robo-Advisors

A friend of mine recently asked for my thoughts on an automated investment service she’d been hearing a lot about.  As an attorney, she wondered if it was the investment industry’s version of Legal Zoom, a popular web-based legal service provider.

Most attorneys I speak to have a similar opinion of Legal Zoom: for simple situations, the service can be valuable.  However, in most cases, the complexities of each unique circumstance makes delivering cookie cutter legal advice difficult, and a risky proposition for consumers.  For example, Legal Zoom can provide you with basic estate planning documents (simple will, PoA, healthcare directive, etc.) but how do you know if that’s what you need or if a standard contract offered by Legal Zoom is even suitable?  This is where working directly with a good attorney becomes critical.  An attorney can assess your personal situation, design a plan and draft contracts tailored to your specific needs.

Many of the same parallels can be drawn for automated investment services.  For simple situations, they are extremely valuable.  If you have a little money to invest, Betterment, Wealthfront or many of the other “robo-advisors” have great platforms for you to do so.  If you have more complicated financial planning requirements or, just aren’t sure what you need, it probably makes sense to work with an advisor.  Advisors who do real financial planning can evaluate your entire financial profile, put the pieces together and help you design a life that you love.  That is a service an automated investment platform cannot provide, and likely never will.  Good planning, legal or financial, requires a human touch.  With that said, automated investment platforms can still have a place in your overall plan.

Perhaps the biggest and most important difference between the DIY legal and automated investment services is how professionals can leverage the platforms to add value to their businesses and clients.  To the best of my knowledge, Legal Zoom’s services aren’t very helpful for attorneys who draft contracts.  Automated investment platforms, on the other hand, can be extremely valuable to financial advisors.

A Valuable Complement

When you work with an attorney, after gathering information, the attorney designs contracts that are unique to your situation.  Legal Zoom isn’t a platform for the attorney to outsource his/her contract writing.  If something like that existed and was somehow effective, I imagine most attorneys would be thrilled!  They would be able to spend less time writing and more time adding value to their other service offerings.

When you work with a financial advisor, the advisor will usually evaluate all aspects of your financial profile and design a cohesive plan that connects each piece to your values, your goals,  and your life.  As part of their services, many advisors also take on portfolio management duties for their clients.  Not only will the advisor recommend an appropriate investment strategy, but he or she will implement it.  Implementing, monitoring and managing a portfolio is very resource intensive. Opening accounts, funding accounts, transferring assets, trading, rebalancing, tax-loss harvesting, and asset location strategies all require significant amounts of time. Historically, each of these tasks has been handled by the advisor or people working for the advisor.  Phone calls, faxes, trade slips and spreadsheets complicate the process making it slow and inefficient.  It is painful for an advisor and costly for a client.  Automated investment platforms have the potential to change all of that.  They can’t replace advisors, but they can certainly complement them.

The Robo 180

When robo-advisors first arrived on the scene a few years ago, many of us within the industry (including myself) were very defensive.  We were quick to dismiss the products as cheap advisor replacements that couldn’t offer “real advice”.  Reflecting back on my own views, they were ill-conceived and short-sighted.  Three years ago, I didn’t see the big picture.  I wanted to fight the robo-advisor and for some reason, felt threatened by it.  Today, that view couldn’t be further from my belief.

Until recently, the compliance requirements in Massachusetts for advisors who utilized automated investment services were largely undefined.  In the summer of 2016, the Massachusetts SEC finally offered policy guidance on the issue which clarified their stance.  This was a big positive for my practice and my clients.

Over the past six months, I’ve transitioned many of my managed accounts onto an automated platform.  The time I spend opening, transferring and funding accounts has been reduced by nearly 75%. The menial, time-consuming tasks of rebalancing, tax-loss harvesting and asset location decisions now happen automatically and more efficiently.  Not only is this great for me but it’s great for my clients.  They receive a better service and I have more time to spend on value-add activities that can’t be automated.

Better Solutions

People hire advisors to connect them with the best solutions for their situations.  In the vast majority of circumstances, an automated investment platform provides my clients with the most effective tool for managing a portion of their portfolio.  Advisors should embrace this advancement and clients should want their advisors to leverage the platforms to provide a better service.

Technology can drive efficiency into so many aspects of our lives and investing is just one of them.  Take advantage of automated investment services.  When paired with the expertise of an advisor, these platforms will undoubtedly improve your financial planning and investment outcomes.


Tim Brennan

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