Will Robo-Advisers Spell Doom For Traditional Financial Planners?
In the financial services industry, a new wave of technology is on the horizon. An increasing number of systems are being developed to supplant traditional means of providing services. One such technology are the Robo-Advisers, which are actually digital advisors that provide portfolio management and financial planning services online, without any human intervention. These kind of advisors are usually affordable than human advisors to all classes of investors.
As on December 2014, such advisors managed about $19 billion, according to a study by Corporate Insight. And it is expected that in the coming years, use of Robo-Advisors will increase even more.
Now for the vital question; should you opt for such digital advisors?
The most important thing which you must look for while choosing an advisor is the quality. Whether you must opt for a digital advisor or a human advisor depends upon your needs and suitability.
Digital advisors provide a platform from which advisers can look to further market penetration by offering these services at a fraction of the cost. In a country like India, where retail equity market participation is less than 2%, there is tremendous scope for growth. However issues such as lack of adequate financial knowledge or investment advice usually serves as an impasse. With the introduction of smart systems such as robo-advisers these barriers could be broken. Investors, who have a small amount to invest, may find it very difficult to pay the relatively high fee of a human financial advisor. Digital advisors solve this problem by being very economical in comparison to their human counterparts. Moreover, they also provide various services such as portfolio management, financial planning, advice on insurance and so on.
However, it needs to be considered that while such advisors can construct your financial plan they may not be able to take into account sudden change in circumstances in your life. Simply construction of a financial plan will not help you to meet your goals. Any changes in your personal or financial life such as addition / deletion of a family member, loss of job, windfall gains etc. also need to be imbibed in your plan as per the situation for prudent planning. A human planner will not only be able to inculcate such changes into your plan, but also tailor the plan around your specific needs.
Moreover, you can discuss your specific circumstances and situations easily with a person. It is not necessary that all digital advisors will be designed to take into account all the conditions and circumstances of every client.
PersonalFN is of the view that while robo-advisors might help you for planning at a rudimentary level and there is nothing wrong with them in general, they might not be able to factor in complex information while drawing a financial plan for you. In this respect, human financial planners play a crucial role, while planning for one's financial goals. However, remember that even while selecting a human planner, it is important that you select an unbiased, experienced and qualified planner.
PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.
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