Is a robo-adviser right for your finances? |

Is a robo-adviser right for your finances?

Danielle Howard

Technology used wisely serves us well. Siri gives us directions to our destination. Our Fitbits track our exercise, food, weight and sleep habits, providing healthy feedback. You can sit in one of those fancy massage chairs and push buttons to experience supreme relaxation.

Technology keeps adapting to the financial world as well. Robo-advisers are a recent initiative and are growing in popularity. A robo-adviser provides a variety of online portfolio management services with minimal human interaction. They create automated investment guidance based on algorithms using Modern Portfolio Theory, Efficient Market Hypothesis and a series of questions to determine your risk profile. They are providing a low-cost alternative to working face to face with a traditional investment adviser. It may be a fit for you.

There are advantages and disadvantages to be discerned. Robo-advisers have no or low minimums to get started, in contrast to working with a human investment adviser. They also have very low costs, ranging between 0.15 percent to 0.40 percent, or a low flat monthly fee. A traditional investment manager’s minimum starts at around $100,000, and fees vary widely depending on account type, size and the scope of services provided. Robo-advisers are a great solution for people who are just starting to accumulate their nest egg or have smaller eggs to manage. If your financial life is straightforward and simple, they have a sweet spot.

If you are in the “accumulation” season, they may be an appropriate strategy. If you are comfortable delegating your portfolio management, and are at ease utilizing online tools, a robo-adviser may be your ticket.

As your financial situation becomes more complex, a personal financial planner and a team of advisers will be of great value. If your financial puzzle is multi-dimensional, using a financial planner to walk alongside you in your decision making is paramount. Are you transitioning between the accumulation and distribution phase of your financial life? If you are approaching retirement and need to manage income from a variety of sources, maximize income options from Social Security and address tax strategies, a robo-adviser will not be a suitable fit. Finding the right financial or investment adviser is the next step.

Financial advisers work in a variety of capacities and in how they are compensated. A question to ask is if they serve you, the client, in a “fiduciary” capacity. A fiduciary is required by law not to engage in any self-dealing or other conflicts of interest. They are obligated to you, acting in a proactive manner on your behalf. They will perform the required due diligence prior to making any recommendations.

If personalized service is important to you, robo-advisers vary in their capacity and ability. Some have people you can talk to on the phone. A robo-adviser takes only the information you give it and formulates a plan based on numbers — and your financial future is rarely based on just numbers. It is dynamic, ever evolving, and hopefully generational. Some things are within your control, many things are not.

How do you calculate the numbers and manage the emotions along the way? This is where the mortal connection is priceless. The right adviser will have perspective and context based on a standing, growing relationship with you that is particularly useful when you have a larger portfolio and a multi-faceted life. You have someone to talk to when “life happens.”

You are unique, your financial situation is as colorful as you are. No one size fits all. No one product fits all, no one solution or one portfolio fits all. Finding the tools to help you build what is important now and down the road is not easy. Use technology prudently – it will serve you. Where it provides true value, use it. For me, I don’t mind occasionally stopping and asking for directions from a friendly face, I deeply appreciate the personal feedback from my health and fitness providers to keep me on track, and I will go for the human massage to work out my neck knots any day!

Danielle Howard is a Certified Financial Planner practitioner. Her office, Wealth By Design LLC, is in Basalt. Visit her at Advisory Services offered through Cambridge Investment Research Advisors Inc., a Registered Investment Advisor. Securities offered through Cambridge Investment Research Inc., a broker/dealer, member FINRA/SIPC. Cambridge and WBD are not affiliated.

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