A former PlanStrongerTV™ guest, Dennis Miller, posed a question to me for his newsletter, Miller on the Money. Dennis wanted to have my thoughts on “robo-advisers” – computer programs that take human beings out of the investing equation. Robos make financial, or even Social Security timeline, recommendations based on general information that is plugged into their software programs. What many people fail to realize is that robo-advice is based on mathematical formulas and rules written by humans. This means the recommendations can be subject to error or to the prejudices of the individuals who wrote the programs. Some large investment companies have gotten on the robo-bandwagon and are now giving their investors the option of using this type of platform as a low-cost, low-minimum-balance-account alternative.
So, what is my personal opinion? I strongly believe that technology is an invaluable tool. Every day, my firm uses computers to perform certain tasks and analyses. Software can also help build a portfolio, but we never tell the computer to “go ahead and manage John Doe’s portfolio.” That is a job that requires human judgment. I’m comfortable with computers “crunching the numbers,” but it’s my team of professionals who will determine how to manage the investments.
To date, there are no programs on the planet that can factor in all the details that should be considered when making financial decisions. I mentioned, above, that there is software available for establishing optimal timelines for taking Social Security benefits. But, what it can’t do is factor in: 1. The longevity of your siblings, parents and grandparents. 2. Your current health and your outlook on your future health and well-being. And, 3. Your view on Social Security, and whether you believe it will still be a viable federal program 10, 15 or 20 years from now.
Here’s another thing a “robo” can’t do. A robo can’t evaluate all the financial products in the marketplace and how they might be used to benefit your particular situation. Let’s use Social Security for an example, again. A good financial adviser can weave together stocks, mutual funds, bonds, annuities, a reverse mortgage loan, cash, etc., to help determine the ideal time to take Social Security. A computer can’t do that. Maybe, eventually, it will be able to . . . but not in 2018.
In conclusion, is there a place for specialized computer software in the world of finance? Yes! Do I think a robo-adviser can replace a human adviser? Nope. A computer can’t listen to your feelings, concerns and goals, and factor that essential data into its recommendations. It’s my belief that people still need people to help make important financial decisions. Maybe the big investment companies are realizing that, as well; some are now offering their robo-platform with an “active management component” – which means a degree of human assistanceis also available or being utilized. That strikes me as funny! Why not just let the human adviser do the work and decide what technology to use?