Should I use a Robo-advisor for my Comprehensive Financial Planning? (No!)

Should I use a Robo-advisor for my Comprehensive Financial Planning? (No!)

24 Jun 2021

From underwriting home mortgages to suggesting movies you might like on streaming services, robots are increasingly being used in many aspects of our lives.

In fact, the rise of robots extends all the way to financial planning.  It is now possible for a robo-advisor to provide some financial planning services, albeit to a limited extent.  If you are looking for a financial advisor in Canton, OH should you consider a robo-advisor? We believe the answer is no!

You need and deserve truly comprehensive financial planning provided by a fee-only fiduciary.  An actual human being should review the nuances of your personal finances and develop a fully customized financial plan that safeguards your hard-earned money.

You need a holistic approach to personal finances spearheaded by a living, breathing, and critically thinking human being.  This professional’s insight and guidance can set the stage for informed decision-making and an ongoing dialogue rather than relying on a robo-advisor that strictly relies on data and algorithms.


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The Rise of the Robots Isn’t Necessarily a Good Thing

Though robo-advisors certainly have their merits, they do not stack up to those of an actual human CERTIFIED FINANCIAL PLANNER™ Professional. You cannot ask questions of a robot and expect an individualized answer.  Nor can you pick up the phone to engage in a verbal discussion with a robo-advisor.  Sure, a robo-advisor may be able to process more information and crunch numbers faster than a human fee-only fiduciary yet this is not as significant of an advantage as many assume.

The bots are certainly low-cost and capable of evaluating a considerable amount of information in little time yet they don’t understand human beings in the same way an actual financial planner does.  The bottom line is a robo-advisor’s computer algorithms are capable of building and managing a portfolio yet this approach is fallible.  Such robots can only provide investment management in accordance with the limits of their programming and your specific parameters as a client.

There is more to prudent and truly comprehensive investing than merely inputting numbers into a computer, having the computer crunch those figures, and spit out suggested investments.  Robots do not understand market momentum and other intangibles.  Furthermore, computer models are not advanced to the point that they can provide comprehensive financial planning in a dynamic manner that allows for strategic alterations based on critical thinking, world events, and other dynamics.

Traditional Human Financial Advisors Provide More Services Than the Bots

A robo-advisor generates investment guidance and manages portfolios based on data inputs, equations, algorithms, and additional complex math.  But, if you have a particularly complex financial situation or highly nuanced goals, the utility of your robo-advisor will prove quite limited.

Only those who are just starting out with basic financial planning should consider choosing a robo-advisor.  However, even these “newbies” will find a human financial advisor is superior after performing extensive analysis of each approach’s merits.  A conventional human financial advisor who provides in-person service offers much more than investment guidance and the management of a portfolio.

This financial guru can help you with truly comprehensive financial planning extending to estate planning, business succession planning, and assistance with particularly complex financial situations.  A CERTIFIED FINANCIAL PLANNER™ Professional will sit down with you and analyze your unique financial situation as well as your financial challenges, goals, and opportunities to improve your financial picture.  The same level of service is not available through a robo-advisor.

Perhaps you are wondering whether you can afford to purchase a new home.  Maybe you would like to know if your budget has enough room for an automobile purchase or lease.  Perhaps you are curious as to whether you can quit your job to launch your own business.  You might even be considering the addition of a new family member or two in the decade ahead.

Only a human financial planner can analyze your idiosyncratic financial situation to determine if such “life benchmarks” are within reason considering your unique financial picture.  This is the valuable insight every individual needs to move forward with full confidence in the context of personal financial planning.

Do Robots Have any Advantages Over Traditional Human Financial Planners?

Indeed, there are a couple minor advantages to relying on a robo-advisor as opposed to a human being for financial planning.  However, these subtle advantages are not enough to warrant a complete reliance on a computer for financial planning.

Robo-advisors may be able to offer portfolio management, buying and selling stocks, mutual funds, ETFs, and other assets based on computations made with highly complex software.  These bots facilitate the rebalancing of a portfolio as time progresses.  However, such decisions are primarily made based on quantitative analysis as opposed to qualitative analysis and current events.

If a military coup breaks out in a nation with considerable oil reserves or if there is a labor strike starting at an eCommerce powerhouse, a robot won’t be aware of it.  However, a human financial planner will certainly be aware of such current events and prove capable of pivoting appropriately and if necessary in the context of portfolio management.

Though robo-advisors may certainly manage portfolios and possibly generate a return on par with that of some human financial planning specialists, there is no guarantee those returns will prove better.  Furthermore, there is no guarantee an equal return on investment (ROI) will be provided faster than what could be possible with a human being.

Consider the Roots of Robo-advisors

The roots of the robo-advisor industry stem back to a foundation of passive investing.  This approach is centered on the use of low-cost funds tied to a pre-established combination of investments.  As an example, some robo-advisors are programmed to primarily focus on managing client money with the use of specific indexes such as the S&P 500 to match the stock market’s aggregate gains in a specific period of time rather than meet a client’s targeted gain.

Such passive investing may not be attractive to many hardworking Americans with their eyes on an ever-expanding nest egg that significantly outpaces inflation as well as the returns available through CDs, bonds, money market accounts, and mutual funds.

The moral of this story is you deserve more than passive investing in which a computer buys and holds a diversified portfolio of stocks on your behalf based on sheer mathematics.

Opt for human financial planning tailored to the nuances of your specific financial situation along with your overarching financial goals and you will rest easy knowing your hard-earned money is working just as hard on your behalf as you did to earn it in the first place.

By working with a fiduciary like McGervey Wealth Management, you can be assured you’re getting investment advice from a firm that has the obligation to disclose conflicts of interest and put your interests ahead of its own.

We get to know you on a personal level and keep things simple, using common language everyone can understand. To learn more about McGervey Wealth, contact us today or get your wealth score to see how you stack up for retirement.

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More About the Author: Matthew McGervey, CFP®, MBA

As a CERTIFIED FINANCIAL PLANNER™ professional, Matthew has a broad knowledge of personal financial planning strategies and solutions.