Technological innovation is a driving force in business, politics, philanthropy and the humanities.  The auto industry is a great example of how rapidly leaders have had to confront a marketplace where fewer people own vehicles.

Just as automated vehicles are an innovation that is upending the traditional automotive profit model, so too has automated investing emerged as a disruptor challenging the traditional financial advisor. Customers are now able to open an account, decide their risk and create a portfolio, and automatically invest without ever speaking to a person. In a world of automation and information, how does a financial advisor continue to be relevant? 

More importantly, how can an individual seeking advice—who is bombarded in every direction by differing opinions—make an educated decision on whom to trust for something as important as their financial future?   

Robo-Advisors—Context And Disadvantages

The rise of robo-advisory, automated systems that provide risk-appropriate allocation portfolios with little or no in-person interaction, has been hailed as the future of investment advisory and has been much feared by financial advisors. For clients who have little planning needs and want the very low cost but still want asset allocation and diversification, robo-advisory offers a sound solution. These online services automate investments and allow low minimums and low contributions. For people who have no dependents or who simply wants to dip their feet for the first time into investing, the robo-advisors can be an easy and inexpensive way to start.

One disadvantage of robo-advisors is that they generally receive a limited amount of data and that limits the planning that can be done. More important is that a robo-advisor does not provide a comprehensive plan that integrates protection, accumulation and distribution strategies.  Further, many people still prefer to work with someone face-to-face and to have a personal relationship with their advisor.

Individual Advisors—Education and Advantages:

There are many reasons why consumers may still want to work with an individual advisor. An advisor can offer distinct advantages, including comprehensive planning and a one-on-one relationship. As a person’s life and circumstances change, an advisor can be a trusted resource to make important decisions in regards to one’s finances. However, oftentimes people will do more research to buy a pair of shoes than they do in trusting someone to manage their life’s savings.

Advisors can also offer educational direction to customers in making the advisor decision:

1. Bad players seem to always find a way to work around rules. It is important for consumers to do research such as looking up the financial professional’s background on Finra Broker Check. This website includes such information as education, business activities,and disciplinary action.

2. Understand an advisor’s designations. An insurance broker is different than a financial services professional and different from a certified financial planner or investment advisory representative. If an advisor only has an insurance license, he or she should not provide investment planning or claim that they are selling the consumer an investment. 

3. Check the advisor’s education. Much like physicians, there are many designations that financial advisors can obtain to enhance their expertise.  

If an advisor and client can clearly understand the main objectives, they can find a product that suits the client’s needs. Every product is distinctive and should be scrutinized against a client’s goals.

When a financial professional offers a product, the most important questions are:

1. What are the benefits of owning this?

2. What are the risks of owning this—the downside?

3. Are there any guarantees? Are they limited in any way?

4. What am I getting in return for the fees I pay?

Some clients with singular needs such as basic investments may find robo-advisors suitable.  Just as automakers are getting out ahead of disruptive change in the auto industry, the advisor who wishes to survive in the new financial marketplace must adapt to the client’s exacting needs. 

For example, the broker who works by choosing stocks and bonds or determining the client’s risk tolerance will find it very hard to justify fees in this new world. As clients have more access to information, they are demanding more from their advisors. Rather than focusing on a stock/ bond split or risk tolerance, advisors must address the client’s many challenges over the course of a lifetime. These can include retirement, education, tax diversification, charitable planning, estate, long-term care, disability, life insurance and job changes. The list is endless. It is important for consumers to know how their financial advisor will address these goals comprehensively and work together to achieve them.

Advisors who utilize the advances in technology and embrace a fiduciary standard will likely do much better than those who fight against them. As consumers have more access to information, an advisor will need to provide a greater level of service to be relevant.

Lizzie Dipp Metzger, CFP, AEP, MSFS, is founder of Crown Wealth Strategies, a national full-service financial firm headquartered in El Paso,Texas. She is a member of the Financial Planning Association.