Dealing with your finances is emotional and personal which is why many people prefer working with another person when seeking help with their finances... and not necessarily a robot. At Wela, we understand and agree.
An article in Business Insider came across our desks this week, and it was focused on the revolution of robo-advisors. We've written about this before, but basically these are companies that have raised lots of money from other companies and built a technology platform to make it easier for clients to invest their money.
This technology essentially acts as a digital mutual fund. A mutual fund is a basket of securities that is designed by a mutual fund manager. Mutual funds can often be found in 401k plans, and the account holder chooses which one to invest in. Robo-advisors, on the other hand, choose clients' basket of securities based on their answers to a couple of simple questions. It’s still a basket of securities… basically a mutual fund when you strip back the good-looking technology.
The article from Business Insider pointed out that the initial goal of robo-advisors and the early adopter companies was to disrupt the entire financial industry. They wanted to overtake the Schwabs and Vanguard’s of the world. These companies have gotten a lot of publicity, but they have yet to take over the industry the way they originally intended. And now other companies are developing their own technologies to compete.
The point I took away from the article is that these robo-advisor companies originally intended to take over the industry, but instead they may soon be supporting these other companies. Mainly because the other companies are bigger and already have the clientele…which is interesting. Robo-advisors seem to have just made the industry aware that they needed to get their act together and become more innovative.
I don’t think robo-advisors are going anywhere. I do believe, however, that they will evolve into something else. Ultimately, the reason they must evolve is because they aren’t solving the true problem… how to deliver financial advice more effectively.
The article clearly points out that robo-advisors don't seem currently capable of dealing with the emotions of individual investors. How do they deal with the simple questions like whether a particular client should invest in a Roth or rollover a 401k? This builds to more complex questions regarding estate planning or tax planning. That is where a human is needed.
This is why we believe that it is so necessary to merge the elegant technology that the robo-advisors have built with the personal human aspects that traditional financial advisors provide.
The answers to investors' questions, like contributing to a Roth, rolling over a 401k, estate planning or tax planning, don’t necessarily have to be communicated the same way it is today, though. Technology can help to facilitate this conversation more effectively. Just look at Skype and FaceTime… these technologies didn’t change the idea that we still want to talk with other individuals. They just made it easier and more effective for us to actually communicate with people face-to-face.
Robo-advisors have awoken us all to the fact that the financial industry must use technology to evolve and think innovatively about client services. That is what we are trying to do at Wela. Not change the way that you invest, but rather make it more effective and efficient for you to access and for us to deliver actionable, personalized, and relatable advice and information to more people. Technology has helped us do that. All of our users and clients have a financial advisor they can talk with, and even the information they get digitally is curated and initiated by human financial advisors who take into account your emotions and situation.
And according to this article, Business Insider believes our approach is the future for this industry. If you haven't signed up for your Wela account yet, get started today.