The investment tools we call robo-advisers have been around for a long time. In many instances, we've used these tools to help our clients. It's a recent thing for companies to put a bow on these algorithms and sell them directly to investors.
And I'm hearing from advisers that they aren't sure where they fit. How do they counter the ads suggesting robo-advisers are better than human advisers? They do the same thing as humans, but for less.
There's one problem with that argument. Humans don't fit neatly into an algorithm. While these tools may generate a "perfect" portfolio, they don't "get" humans.
(More insight: What separates advisers from algorithms)
I do understand why some advisers see robo-advisers as a threat. If you believe your value to your clients is picking a "perfect" portfolio, then you probably are in trouble. But if you know your true value as an adviser, then algorithms become a great tool you can use to help your clients.
Let's walk through it. Think about how you explain the process. Of course, you'll use the latest tools to help your clients. Algorithms are great for helping us solve problems that fit in a formula. But remember: Humans don't fit into algorithms. We aren't walking, talking computers. We come with a complete set of complex emotions.
So as long as
trust and empathy play a role in decision making, there will be a role for human advisers. If nothing else, robo-advisers clarify our real value. It's not to collect a fee for only doing what an algorithm can do. It's to be the human that our clients need when a computer expects logic and all we have is emotion.
Let the algorithm do what it's good at, and focus on your job of helping clients deal with the mess of being human.
Carl Richards is a certified financial planner and director of investor education for the BAM Alliance. He's also the author of the weekly "Sketch Guy" column at the New York Times. He published his second book, The One-Page Financial Plan: A Simple Way to Be Smart About Your Money (Portfolio) this year.You can email Carl here, and learn more about him and his work at BehaviorGap.com.
