It seems like every few days there’s a new article or post on Robo Advisors, and it usually comes from 2 different camps: 1 camp is from the Robo Advisor companies or ‘low cost advocates’ who tout how great they can be and how much money you can save (generally 1%/year or more in fee savings). The other camp is generally the Financial Advisor world (or the companies they work for) who generally seem pretty opposed to the notion of the Robo Advisor platform, stating that the advice and planning received by a qualified Advisor has a tremendous amount of value in itself. Now, in essence, both sides are correct. Lower fees can make a huge amount of difference in someone’s overall investment growth, to the tune of tens or even hundreds of thousands – by reducing the fees charged on your investments by even 1% can mean an increase of almost 33% in your assets over the long term. However, on the other side, there are many studies that show that the value of advice received from a qualified Financial Advisor can mean the difference between someone achieving their financial goals or not.

We know that each side of the ‘pro’ or ‘con’ audience has some valid points, but also often their own biases and interests at hand. The Robo Advisor companies obviously want to take market share away from the banks and mutual fund/seg fund companies, and the Financial Advisor world is trying to hold on to their clients and really, in many cases, feel threatened by the ‘low cost world’. Generally, any discussion, article or post will be written in a ‘Robo Advisor vs Financial Advisor’ sort of way, but does that really need to be the case?

Let’s take a step back. What is a Robo Advisor?

A Robo Advisor is an online wealth management service that provides automated, algorithm-based portfolio management, generally without the use of human Advisors/Planners. The objective is to have a fully automated online process that allows clients to get a customized ETF portfolio at a low cost, all from the comfort of their own home. However, this process generally does not offer any advice or planning in regards to the client’s personal overall financial situation. This means it’s somewhat of a ‘do it yourself’ type of structure that puts the onus on the individual client on what type of account to open, how much to fund, for how long etc…, without taking into consideration the other aspects of the clients overall financial plan (such as debt elimination planning, tax planning, insurance planning, estate planning etc…). Although there are some benefits of this platform, it is evident that there are also some limitations.

Why do most Financial Advisors oppose Robo Advisors?

Frankly speaking, most Advisors are not fans of the Robo Advisor platform as it is essentially their competition, and it is something that’s been gaining a lot of traction in the industry. It seems more and more clients are switching to these platforms as they are attracted by the low costs and general user friendliness of having everything online. However, there’s a very strong point about the ‘value of advice’ from a qualified Financial Advisor and how that could impact the clients overall financial situation. There have been numerous studies showing that, over the long term, households with sound financial advice have almost 3 times the assets than a household without financial advice, as well as being able to drastically increase the chances of achieve financial goals set out.

Most Financial Advisors are firm on their belief that there is a great amount of ‘value’ in working with an Advisor and this thought is definitely warranted. However, does that mean that we should do away with Robo Advisors and not consider them a useful tool in our overall financial plan? The answer is No!

The reality is that many Advisors do not realize that they can actually incorporate the Robo Advisor platform within their own business – thus being able to keep the client relationship and also provide clients with an effective and low cost wealth management solution. Robo Advisor platforms are actually actively engaged in trying to build relationships with Financial Advisors to be another option that can be offered to their clients. This leads to a win-win situation for both the client and Advisor alike, and not having to choose one while sacrificing the other.

So, why don’t Advisors offer this option to their clients?

There are 2 main reasons. Either they don’t know they can, or they don’t have the ability to. The first is self-explanatory. Many don’t even realize that this is something that is available to them and are often surprised to find out it is. The second reason is a little more complex, as it really depends on several different factors. Generally, with some of the bigger name companies, they don’t allow their Advisors this option. It could be for a variety of reasons, but it often comes down to things like money and control. It could also be that some companies only sell their own proprietary products and do not have interest in offering third party products. Advisors who are not independent will generally fall into this category, and it’s usually Advisors from these companies who are the most active in speaking out against Robo Advisors. Now, although this doesn’t necessarily make them ‘unqualified’ or ‘bad’ Advisors, they are definitely missing out on a great tool and opportunity that can help themselves as well as their clients.

As the industry and times change, it is important for companies and Advisors alike to keep up with the changing times. In today’s world, technology plays a big role in all aspects of our lives, and household finance is one of them. Technology can be a great tool as a means to make things easier, cheaper, more efficient and paperless, and it would make sense to think that Robo Advisors (which do those things) are here to stay. Rather than meeting new things with resistance, it often makes sense to view them with an open mind and how they can actually benefit the client. We, for one, embrace these new tools and opportunities and are more than happy to be able to provide them to our clients. Having an Advisor that is truly independent and knowledgeable is of great value and can offer a higher level of service to you. At the end of the day, knowing ALL your options and how they may/may not fit into your personal financial plan will help you make the most informed decisions for yourself.