posted on May 23rd 2018 in Austin CFP Team Posts with 0 Comments /

Investing seems like it should be straightforward: buy when stock is low, sell when its high. Reap the profit. Makes sense especially when you consider the big gains demonstrated by the stock market over the past couple of years. Big margins meant bigger discounts for customers of the financial service industry with the growing popularity of robo advisors. We’re a tech savvy culture that has grown to trust algorithms and discount service to provide the same level of guidance as the traditional desk advisor.

Robo advisors don’t always offer you financial advice when you need it most

Taking an algorithmic approach oftens means the tough decisions are left to you. Robo advisors provide plug-and-play investment services that help every level of investor get in the water. When the market increases and continues to increase, the average investor will interpret this as an opportunity for growth. That assumption is heavily influenced by a limited set of data provided by market history. This can lead investors to engage in risky behavior without receiving trusted and experienced guidance. Robo advisors unfortunately do not have the bandwidth to call out red flags or engage clients in a more robust investment strategy; and recent history isn’t enough information to make reliable decisions with. As a result, when the market shifts, investors are left confused without someone to talk to.

Current investors are experiencing a different market climate than even just a few months ago. Today’s market is volatile. When the market trajectory is unclear, how do you decide when to invest, stay put, or sell? More importantly, how do you find out how these decisions could impact your life goals? While robo advisors may have helped get investors to participate in the marketplace, their clients are left to make the tough decisions alone.      

How Do Robo Financial Advisors Respond to Market Volatility?

What goes up must come down. The current stock market volatility has become as newsworthy as the Winter Olympics as interest rates increase and stock values dip sharply. With the onset of the largest stock market decline of recent years, several robo firm websites crashed as a result of the high volume of customer activity. Media outlets added to investor panic by reporting images of shocked traders rather than offering objective data.   

After such a strong showing of growth, when the market dips, the anxiety is a natural reaction. Investors, especially young investors, have ridden the wave all the way into shore at a discount thanks to accessibility of robo advisors. But no one has shown them how to paddle back out. No one has shown them what opportunities still lay ahead.

Robo Advisors Costs and Benefits: You get what you pay for.

Robo advisors can be an easy solution in a bull market; a great solution even. But true investment strategy levels the easy times with the challenging times to provide long term investment solutions to help investors reach their financial goals. While no one wants to overpay, price doesn’t guarantee value. Robo advisors offer a 30%-50% discount in price for their service. That is considerably less than big Wall Street investment firms which offer complicated fee structures and pass the overhead costs to the customer. Ultimately robo advisors simplify that service by cutting down overhead by staffing young customer service professionals in place of seasoned financial planners. Robos can even seem to have lower fees than independent, cost-sensitive firms like WorthPointe, but robo advisor customers should still watch out for hidden fees in the fine print.  While robo advisor firms help investors get their foot in the door, the rest of the financial journey is up to the investor. This restricts investors’ financial moves to those guided by basic calendaring or lemming-like decisions. By following the crowd or simplifying decisions to a calendar, investors risk missing investment opportunities better suited for them. Take the time to evaluate whether the cost break of continuing or starting your portfolio with a robo advisor is worth its limitations.

Naturally, questions surface more frequently and urgently when times get tough. Instead of the scripted 24-hour help desk of a robo advisor, you may find yourself wanting more robust answers and big picture understanding for your financial future. Someone who has earned your trust and can help you maneuver around the pitfalls. Someone who is experienced and understands the data just as much as he or she understands you. How much do you need to help float you while you get your business of the ground? Should you wait to rebalance your portfolio? These are questions that a seasoned financial planner can help you answer.

Unfortunately that type of advice isn’t in the robo advisor’s wheelhouse. They can help by providing you with data. They can help stop you from making emotional or gut decisions. They can’t help you understand how to time your financial decisions or how your financial decisions impact your personal and professional goals.

There’s more to you than an algorithm.

Stock market investments is just one tool available to financial planners to help you reach your financial goals. Financial planners have a wealth of other tools available for their clients that include market education, budget creation, habit-forming financial training, and accountability coaching.

A robo advisor is limited in adaptability. Your goals and life may shift, yet those changes are not factored in a robo advisor’s algorithm. While you may feel assurance that a robo advisor isn’t going to push investment products, a robo advisor still can’t guarantee they are working in your best interest. As CERTIFIED FINANCIAL PLANNER™ professionals, we uphold a fiduciary duty to each of our clients, ensuring their best interest is at the forefront of our investment strategy.

Each client is listened to and coached along their financial journey no matter what the market climate is.

Find a true partner.

No one likes paying for insurance but at this point in life, we’re all responsible enough to understand the importance of being prepared for the what-ifs so that they don’t turn into if-onlys. The same is true for financial advice. What many robo investors are experiencing in today’s market is a case of the if-onlys.

Fee-only financial advisors have helped their clients project and prepare for sudden market downturns. Their investors know they can pick up the phone and get the answers they need as well as assurance that their strategy is working for them. Moreover, the advice their client receives comes directly from the financial planner who has earned their trust and understands that their financial decisions are tied to bigger dreams. Financial professionals build a working relationship with their clients over a series of meetings both in-person or over the phone. While many clients may have several professionals working on their investment strategy, these clients know and trust the person on the other end of the phone.

There’s no need to regret a decision to work with a robo advisor. Their usefulness had its place. Yet more than ever, now is the time to seek the attention and partnership that your financial future deserves. Connect with a CERTIFIED FINANCIAL PLANNER™ professional who can join you on your journey and help you actualize your vision.

about the author: Joshua I. Wilson CMT

Josh-Wilson CMTJoshua I. Wilson, CMT®, AIF® is a partner and wealth manager who has managed over $2B for TD Ameritrade. Joshua led the national training and development program for all of TDA’s new advisors and managers, won a national coaching award. Joshua gave his graduation speech at Brown University. Joshua is a Chartered Market Technician® (CMT®) and a Accredited Investment Fiduciary® (AIF®).

Learn more and/or Contact Joshua

Continue Reading

Other articles filed under Austin CFP Team Posts

The Gift of Financial Planning

December 5, 2018 - Our clients come to us looking for creative solutions to unique financial situations — and we take pride knowing we can develop custom plans for them that meet their needs. They don’t want the standard set of services. They are...
Continue Reading

Meet Our Advisors

November 29, 2018 - We love sharing the stories of how our advisors found WorthPointe to be the perfect fit for their lifestyles and professional goals. It brings us joy to help them find their niche and serve our clients even better. Here are...
Continue Reading

The Morgan Report Q2 2018 Review: 6 Tips to Take Care of Aging Parents and Loved Ones

July 13, 2018 - Are there many important things to be done when a parent is declining in health that you don’t read about too often? Most definitely — and I’d like to share some lessons learned that might help those of you who...
Continue Reading

Robo Financial Advice: Is the discount worth the risk?

May 23, 2018 - Investing seems like it should be straightforward: buy when stock is low, sell when its high. Reap the profit. Makes sense especially when you consider the big gains demonstrated by the stock market over the past couple of years. Big...
Continue Reading

The Morgan Report Q1 2018: Volatility vs. Security

April 17, 2018 - People want a sense of security — emotionally, physically and financially. The truth of life is that we try to manage a tightrope walk between chaos and order. If somehow we can incrementally achieve some order in a life that...
Continue Reading

Return to Blog Home