5 Biggest Robo-advisor Myths – Debunked!

The past few years have brought several digital advisors to the scene, and they have caught on like wild fire with many up and comers looking to get professional market exposure at minimal cost. Yet there are several facets of these platforms that are misunderstood by the population at large. Anyone looking to begin with a robo-advisor should understand these important distinctions.

#1: They’re Only for Millennials

First of all, not everyone in the segment of the population born between the early 1980s and the early 2000s appreciates the “millennial” moniker. While this cohort is known for being compassionate and driven, there are some negative connotations that go along with this categorization, such as being whiny and entitled.

Secondly, powerful online tools are far too good for other generations to miss out on. So are these tools only for younger people? Certainly not, yet the world at large seems to believe so.

The numbers show that online investing is indeed a multi-generational tool. These platforms have had mass appeal to some of society’s older members such as Gen X or even the Baby Boomers. In fact, according to Hearts and Wallets, half of people ages 53 to 64 use digital advisors, and so do 30% of retirees (as mentioned in Eisenberg, 2016).

Many younger professionals may prefer the lower fees and easy access to investment advice, and may be so disenchanted with Wall Street that they cringe at the thought of working directly with a financial planner. But don’t forget that many older investors may have become fed up with paying high fees after going through numerous recessions and being unsatisfied with their advisors. Or, they’ve become frustrated after years of struggling to understand opaque pricing models that contained hidden fees. For these people, a roboadvisor platform is a great fit.

#2: The Word “Robo-advisor” is a Fitting Term

Robo-advisor reminds me of the movie Robocop that I saw as a child. Or, of Star Wars’ famous droid R2D2.

It’s a scary word. It implies that there’s no person behind the process and that the whole platform is just some plug-and-play algorithm.

In reality, advisors have used algorithms for years. The entire process of portfolio modeling is inherently an automated process. Do you really think the investment advisor creates a totally customized portfolio for every single client every single year? Very few advisors actually do this, contrary to what the general public thinks.

Don’t be put off by the automated nature of these platforms. Lower fees don’t necessarily equate to a lower level of service. In fact, most offerings have a human being at the helm. It varies, depending on the firm and how they structure their product. For example, with our platform we fully involve our investment committee in creating the market strategy and they remain involved on an ongoing basis. We also have planners, advisors and client service managers available for real-time chat for all Q&A and support. Others may not work the same way.

Digital investing or online investing are far more favorable terms that we’d love to see the world adopt.

#3: They All Place Your Money into Mutual Funds or ETFs

Commingled vehicles, such as mutual funds or ETFs, are typically thought of as the investment of choice for these digital platforms. In reality, though, some companies will place your money into individual securities that are vetted by a legit investment committee. If that’s your cup of tea, you can find them, but they do tend to be a little bit less common.

#4:  They’re For Smaller Portfolios

This notion undermines the credibility of the entire concept. Along with this assumption comes other negative myths such as that online platforms are not safe or confidential, they are whimsical, and they shouldn’t be trusted by anyone who has a meaningful amount of money.

The truth is that digital platforms serve investors with a variety of needs. Some people, for example, have accrued a large gain in a position that they need to unwind without getting hit with a huge tax bill. In instances where complex situations like this are present, working one on one with a professional advisor and maybe even your accountant is the better way to go.

We’ve seen people with millions of dollars use online investing as the core of their portfolio and then direct elsewhere the balance of their wealth, that which requires more personalized service. There’s nothing to say that you can’t use both!

#5: They’re only for the tech-savvy among us

The whole movement was created by the demand for easier, faster access to investment advice. The ease of use depends on the company. We’ve found that most platforms were formed with the goal of making navigation as intuitive as possible for the user.

Most of the time, working with an online investing platform is no harder than logging on to your Amazon account.

Summing It Up

Just like any new convention that comes to the market, misconceptions are bound to occur. The reality is that roboadvisors are a great tool and one that could help many more people than you may think. Please feel free to share this article if you know someone who would be a great candidate but maybe needs a little prompting to see these platforms for what they truly are.

Sources

Eisenberg, Richard. (2016, Dec 6th). Robo-Advisers: Not Just For Millennials Anymore?, Forbes. Retrieved from https://www.forbes.com/sites/nextavenue/2016/12/06/robo-advisers-not-just-for-millennials-anymore/#53f5dd9d2738.

This material is provided for informational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The views and strategies described may not be suitable for all investors. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. You cannot invest directly in an index. The opinions expressed are subject to change as subsequent conditions vary. Advisory services offered through ACG Wealth Inc.

Digital advisorSara Grillo