Although most traders continue to use human advisors, the rise of web-based investment systems has made it more important than ever before to understand the difference between ‘robo-advisors’ (Automated stock portfolio management services) and ‘individual advisors’. Solutions Magazine has provided the following to help determine the difference and highlights the importance to keeping ‘human being advice’.
How does “robo-advice” work? Because these platforms don’t offer individualized advice, the term “robo-advisor,” although catchy, is a misnomer. It’s actually just software. When a client registers for an ongoing service, they answer a couple of questions that determine a generic investor profile. The software then presents your client with choices of ready-made portfolios based on the profile.
Because the information is formulaic – quite literally based on a mathematical formula – they can only just account for a restricted range of goals and risk tolerances. Robo-advisor software is designed to sort clients into wide categories and to serve those categories quickly and better value. This model depends on the investor answering the questionnaire accurately.
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It also places the responsibility of finding the right portfolio on your client instead of the advisor, since there is no advisor. Human advisors are certified experts who create comprehensive financial plans designed to build prosperity, minimize fees, and accomplish a diverse range of other goals. These may include everything from being able to afford next year’s vacation to buying a home to living comfortably in pension. Because money is more than an account balance – it’s a family’s home, a child’s school tuition, a crisis fund for tough times – creating a plan requires understanding the psychological importance of each financial goal. A consultant does much more than portfolio rebalancing also.
She or he can help rearrange investments for taxes efficiency, review budget, and saving strategies, and put in place the right financial safety. As a total consequence of understanding the entire picture of the client’s life, a financial professional can handle varying levels of complexity. If litigant experiences major changes, programs can be adjusted to react to the client’s new circumstances.
By the same token, if the economy changes, an advisor gets the depth of knowledge to provide a proper plan and analysis of action. When confronted with the decision of staying the course or making an adjustment, you can sit back with an expert intimately familiar with your investments. An advisor can evaluate what your choice shall mean, not for your portfolio just, but for your long-term financial well-being.