When Finances Get Complicated, Investors Will Always Need a Human Touch

We’ve seen a lot of noise recently from robo advisors attacking one another over their fee amounts. It’s a shame that they’re taking shots at each other, because a number of players out there are offering something really unique for investors.

When it comes to fees, there seems to be a race to the bottom in play. With new entrants into the industry including those from legacy financial services companies, the robo model is beginning to look commoditized, with a focus on slimming fee structures and providing off-the-shelf algorithms in return. It makes me think of an anecdote I once heard from former New York mayor, Mike Bloomberg. When he was campaigning, he declared that he would work for a salary of $1 per year. His opponent’s response: “You get what you pay for.” It’s one of the few times Bloomberg admitted he was speechless.

At Personal Capital, we’re all for offering lower fees than traditional investment firms. And like the robos, we offer sophisticated technology and a variety of useful tools to help our clients understand and manage their entire net worth. But more and more, we hear from our clients that they have complicated life situations that are too difficult for a robo to manage. Many of our clients have an average of 15 different financial accounts, own one or several businesses, and perhaps have a few houses or kids with looming college expenses too. Those folks tell us they still need personal, customized advice from a dedicated financial advisor.

The robos can and should be inexpensive because they don’t bring the value of a human advisor or human intelligence to the equation. When investors outgrow the robo offering and require the expert perspective and personalized guidance that only a human can provide, our advisors are ready to provide the insight needed to develop a comprehensive investing plan.

Consider the recent volatility we’ve seen in the market — the value of a human really shines in tough times by helping investors stay the course when their knee-jerk reaction is to sell off. Vanguard research shows that an advisor can help an investor earn 3 percent more in net portfolio returns over time by providing ongoing relationship-oriented services such as financial planning, discipline and guidance.

The way the robos are shaking up the traditional advisory model is great. Investment advice is becoming democratized in a way never before possible. But when it comes to challenging questions and complicated life situations, the human touch is irreplaceable. A race to the bottom with fees can’t hide that fact.