Are Robo Investment Advisors Going to Replace Humans?

Financial advisors help their clients to develop and implement financial plans. Also, they advise individuals or organizations on various investment strategies, taxation implications, pension plans, insurance, etc. A financial adviser ensures you make the right decisions regarding your finances. 

 

Technology and automation have become significant in every sector, and the financial industry is no different. Robo investment advisors or Robo advisors help to automate the financial advising process. Most technological advancements take over human duties to eliminate repetitive tasks, time wastage, and human errors. 

 

However, while some tech will take over human duties completely, others may not be able to do so. This article will answer the question: are Robo investment advisors going to replace humans? Let’s find out.

 

 

What are Robo investment advisors?

 

Robo investment advisors are digital platforms that provide businesses and business owners with automated, algorithm-driven financial planning services with little to no human interference or supervision. Also, a Robo advisor is a service that uses highly specialized software to do the work of investment advisors or wealth managers. 

 

Robo advisors are digital platforms that allow your money to be invested on auto-pilot, meaning you do not have to monitor your investments constantly, and everything will go smoothly. Since Robo advisors are inexpensive and require a low opening balance, their services are available to retail investors. 

 

In addition, these Robo advisors are designed by humans to give financial advice to investors based on the inputs they receive from such investors. Other services that Robo advisors provide include automatic rebalancing and tax optimization.

 

Robo advisors could also customize your investment portfolio according to your geographical location. For instance, Wealthsimple is a Robo advisor in Canada for Canadian residents. Although non-Canadians can use the advisor, Canadians will find it easier to work with such a personalized Robo advisor that understands Canada’s economy. As a result, over 2 million Canadians trust Wealthsimple with their investment.

 

Robo advisors work by asking questions about your financial situation or future goals, and this is usually carried out through online surveys. The data the Robo advisor collects from the surveys are then used to offer you advice. 

 

Also, the advisor will use the data to invest for you automatically. Robo investment advisors use computer algorithms and advanced software to develop and manage your investment portfolio.

 

 

Benefits of Robo investment advisors

 

There are areas in investment in which financial advisors will perform better than robots. There are also other areas where Robo investment advisors are superior. Robo investment advisors are tools in financial technology that attract many benefits and advantages for businesses and individuals. These include:

 

1. Low fees

 

When compared to human financial advisors, Robo advisors are less expensive to operate. Robo advisors provide traditional investment management services to investors at lower fees than human advisors. 

 

Before automation, the prices collected by financial advisors were not budget-friendly. However, with Robo advisor software, you can choose from the numerous Robo advisors to get one that fits your pocket. 

 

Also, some financial advisors may require that their clients have a large amount of money as their minimum account balance. But Robo advisors have a low or no-account minimum. 

 

 

2. Automated rebalancing 

 

As time goes on, the investments that make up your portfolio are prone to change, leading to the drifting of your portfolio away from your chosen asset allocation. Rebalancing is the process of realigning the weightings of your portfolio of assets. 

 

Rebalancing involves buying and selling mutual funds, exchange-traded funds, and other investments to return your portfolio to the planned asset allocation. Of course, you can decide to rebalance your portfolio yourself or pay someone else to do it. But a Robo advisor will automatically rebalance your portfolio when necessary. 

 

For instance, if your target asset allocation is 80% stocks and 20% bonds. But stocks have a bad year, and by the end of that year, your portfolio drifts to 75% stocks and 25% bonds. This will trigger your Robo advisor to correct your portfolio to sell some bonds to buy more stocks.

 

 

3. Robo advisors make it easy to invest

 

Investment might seem like a complicated process, and when it is not done right, you will lose money instead of gaining more. But with Robo advisors, investing becomes relatively easier. For instance, Robo advisors do not put all your eggs in one basket. Instead, they help you reduce investment risks by spreading your investments across several industries, regions, asset types, etc. 

 

Over time, the broad market exposure will lead to a high growth without high risk. Also, automation makes life easier for everyone. Also, there are various types of investments, and a Robo advisor will direct you to choose the best for your goals. So, using a Robo advisor makes it easier to invest and manage your investments.

 

 

4. Robo advisors take the emotions and guesswork out of investing

 

When it comes to investing, your feelings have a way of making an appearance, even when you do not want them to. This is emotional investing. Emotional investing involves investing based on emotions, negatively affecting your investment decisions. 

 

For example, if you find yourself being anxious or stressed during periods of uncertainty, it could impair your ability to make rational decisions. Also, emotional investing happens when an investor makes decisions based on the market’s daily activities rather than focusing on the fundamentals. 

 

When you let your emotions or impulses drive your investment choices, it could lead to severe losses. But with Robo advisors, you eliminate instances of emotional investing. Also, Robo advisors take a critical look at your goals, the market, and other factors to ensure that you make the best decisions for your investment. 

 

 

Are Robo investment advisors going to replace humans?

 

Plain and simple, Robo advisors are unlikely to replace human financial advisors. This is because Robo advisors are mostly suited for traditional investing but are not the best choices for more complex issues like estate planning. 

 

Also, Robo advisors are often criticized for their lack of empathy and complexity. However, some of these Robo advisors have human advisors available for questions. This shows that although the processes are automated, there is still a reliance on human financial advisors.

 

Robo investment advisors may offer many benefits to investors, but there are some tasks that a human being will handle better. For this reason, most people believe that Robo investment advisors won’t replace human financial advisors, or at least not yet.

 

Reasons Robo investment advisors can’t replace humans

 

Although some of the reasons Robo investment advisors can’t replace humans are mentioned above summarily, this section will go into more detail. So, these are the four primary reasons we think Robo advisors won’t be replacing human financial advisors. 

 

1. Limited flexibility and personalization 

 

Personalization and flexibility are two features that Robo advisors have not fully gotten down. Robo advisors make their decisions for people like you and not you personally. For instance, when you use a Robo advisor, it recommends a handful of investing plans. 

 

These plans depend on your profile, and in most cases, you cannot customize the plan. For example, you might have to choose a plan that closely describes your goals but not perfectly. However, with human financial advisors, you can speak with a human being, and they will personalize your plans to fit in with your goals perfectly. 

 

Because a Robo advisor has a limited view of your financial situation, it won’t be able to provide detailed planning advice to fit your situation. With a human financial advisor, you get nuanced and complex financial advice often custom-tailored for their clients.

 

2. Robo advisors have no emotions

 

Of course, Robo advisors have no emotions―they are robots. So, while using Robo advisors eliminates the prospect of investing based on your feelings, completely getting rid of emotions might not be a good idea. 

 

Robots lack the empathy that investors need during investments. Although Robo advisors don’t have feelings making them better investors, you as an investor are human, and you have emotions that need to be managed. 

 

For instance, if an investor has been having a good investment year, but suddenly there is a drop in the market rates, most investors begin to panic. At this point, such investors need someone to ensure they do not make rash decisions in the heat of the moment. 

 

Unfortunately, Robo advisors cannot empathize with such an investor because they have no emotions. Also, if an investor faces other challenges such as a sick child or parent, fire damage at your property, etcHuman advisors are more equipped to deal with such life’s crises and challenges. 

 

They will provide you with more flexible and in-depth advice from an empathetic point of view. Additionally, human advisors can assure clients when there are market downturns or if the client feels discouraged about their goals. 

 

3. Limited human interaction

 

Apart from having someone to talk to in case of an emotional crisis, there are other issues you may want to talk about while on your investment journey. However, human beings are in short supply when it comes to Robo advisors. 

 

Robo advisors offer varying degrees of customer service. But speaking with a customer service representative over live chat cannot be compared to talking to a human financial planner with decades of experience. 

 

There are times when investors end up combining Robo advisors with the services of human advisors because they need the reassurance of speaking with someone who is genuinely knowledgeable about investment. 

 

4. Robo advisors only do what they’re told

 

Who tells Robots what to do? Humans. Human beings are in charge of developing and programming the Robo advisor software you use today. Most, if not all, Robo advisors require the input of expert human financial advisors in their development. 

 

For example, professional financial advisors provide the questions Robo advisors ask you concerning your portfolio and future goals to determine which investment will be suitable for you. This points to the fact that human interference is still present in Robo advisors. 

 

Also, Robo investment advisors can only carry out actions that they have been programmed to execute. So, if you need to make changes in your goals, a Robo advisor may not be as effective as when you speak to a human financial advisor.

 

Also Read | An Introduction to Financial Analysis

 

Top Robo advisors in 2022

 

Some of the best Robo investment advisors offer an easy account setup, solid goal planning services, and portfolio management. Also, these Robo advisors provide you with robust security features, excellent customer service, and low fees. These Robo advisors offer services that make the investment process less complex and more rewarding.

 

1. Wealthsimple 

 

Wealthsimple gives you investing on autopilot. This means every action regarding your investment becomes automated, and you do not have to spend all your time monitoring your investment. 

 

Wealthsimple works by helping you invest in an intelligent portfolio of low-fee funds designed to achieve your financial goals. This Robo advisor believes in putting your eggs in different baskets because when you diversify your investment, you minimize risks and maximize rewards.

 

Wealthsimple will help you choose a risk level you are comfortable with, build a custom portfolio to fit your financial goals, and provide the necessary security to protect your investments.

 

2. SoFi

 

SoFi is a top Robo advisor that will build your portfolio for you with no management fee. This advisor eliminates the stress of investing by helping you overcome the complex parts: goal setting, rebalancing, and diversifying your money. 

 

Whatever your goals are, SoFi will help you make plans that will help you tackle multiple goals. Also, when it comes to rebalancing, this Robo advisor will provide you with automatic readjustment of your stock and bonds quarterly to ensure you are on the right path. 

 

There is no investment without risk, but with SoFi, the risk becomes reduced due to diversification. Diversifying your portfolio involves allocating your money across different financial investments. 

 

3. Betterment

 

With this Robo advisor application, you get the tools, inspiration, and support that you need to become a better investor. Betterment provides you with investments built for a better future. This app helps you earn more money, whether you’re starting with $10 or $10M. 

 

Betterment believes that investing is the key to building wealth. So, with as little as $10, you can use this app to invest while on the go easily. Also, the app has automated tools and strategies that will help you unlock your money’s potential. 

 

Betterment was built to make investing easy. It guides you through portfolio options, risk levels, goal setting, savings features, and every other investment aspect you need to know.

 

Conclusion 

 

From this article, you have learned that although Robo advisors have come very far in their development, they still have a long way to go if they will replace human beings. Also, there are several advantages of using Robo advisors, but for a more efficient experience, you might want to consider working with a human for your financial needs.