The past several years have brought an increase in the integration of technology in the financial services industry. With the advent of robo-advisors and the heightened use of artificial intelligence (AI), many financial professionals have questioned, “Will robo-advisors replace financial advisors?”
The answer? No, robo-advisors will not replace financial advisors. Despite the rise in AI technology, financial advisors will forever remain superior to robo-advisors. This article aims to debunk myths about AI and financial advising and highlight how these tools can enhance your capabilities as a financial advisor. Read on to learn more about this new technology and how to use it for the betterment of your financial practice.
Robo-Advisors and Their Capabilities
Robo-advisors are automated platforms that rely on AI and algorithms to manage clients’ investment portfolios. They also use information from client questionnaires to build an investment strategy personalized to each client. These digital tools depend on advanced algorithms, machine learning, and information about a client’s financial situation with no need for human intervention.
Robo advisors feature a wide variety of financial planning services, including:
Portfolio management. Robo-advisors provide comprehensive portfolio management services. They implement investment strategies using an advanced algorithm based on pattern recognition, market data, etc.
Rebalancing. This vital feature enables ongoing monitoring of an investment portfolio and ensures a client’s portfolio has the right balance of investment types.
Tax-loss harvesting. Tax-loss harvesting is a strategic approach to offset capital gains by selling underperforming investments. Robo-advisors use this method to reduce the tax burden on a portfolio.
Goal tracking. Robo-advisors also share a client’s progress toward their goals with goal-tracking features.
Investor education. These tools are also known to provide an abundance of resources for clients to learn more about investing. Robo-advice is given to teach clients about the stock market and explain investment decisions.
Bank integrations. These integrations allow clients to seamlessly send funds to the robo-advisor for investment.
Will Robo-Advisors Replace Financial Advisors?
Robo-advisors are not poised to replace financial advisors but to support them in investment management. These automation tools are far from human and have been criticized for lacking empathy and sophistication in decision-making.
Additionally, financial planning consists of more than just asset allocation. Financial advisors and CFPs are equipped to provide financial advice on estate planning, wealth management, budgeting, IRAs, and much more.
Unlike financial advisors, robo-advisors invest based on the assumption the client has clearly defined goals and an in-depth understanding of their financial health, investment models, and possible outcomes. However, many investors need more guidance than robo-advisors can provide and prefer working one-on-one with a financial professional.
Robo-advisors utilize machine learning to personalize an investment strategy that considers risk tolerance, portfolio characteristics, and a client’s settings. While this may work well for beginner investors, many investors are also concerned with ESG initiatives and the social impact of their investments. These initiatives can be better managed with a human touch. Traditional financial advisors can give personalized investment advice that aligns with a client’s holistic goals.
How Robo-Advisors Complement Financial Advisors
Robo-advisors can be complementary to financial advisors in several ways. This hybrid approach of using robo-advisors to support your services can be highly effective if managed properly.
Firstly, they automate tasks such as index investing, rebalancing, and tax-loss harvesting, which frees up human advisors to focus on higher-level client interactions and investment decisions.
Secondly, these AI-powered advisors work around the clock, giving financial advisors a clear picture of a client’s investments and making adjustments as necessary.
They also help financial advisors foster better client relationships and build trust by giving them the time and space for personal interactions. This can include more frequent communication via phone calls or emails to answer clients' questions.
Additionally, the increased efficiency of using robo-advisors for basic investing gives financial advisors the opportunity for outreach and increased client acquisition.
Enhancing Client Relationships with Robo-Advisors
As mentioned, financial advisors can deepen client relationships by using the time saved by automating tasks with robo-advisors. This gives advisors the time to call clients and check on their progress toward their financial goals or give advice.
Personal interactions like these are highly impactful whether you feel it or not. Spending the time to share personalized advice and showing human empathy in financial planning are areas where robo-advisors cannot compete.
Human financial advisors can leverage technology to provide a personalized service experience that satisfies clients. This technology can include robo-advisors that save time and deliver more customized services. It can also mean using advanced financial planning software like Asset-Map to clearly communicate financial information for a more collaborative conversation.
Asset-Map gives financial planners the visual capabilities clients are often seeking. With Asset-Map, you can revolutionize your financial planning and help your clients gain financial clarity with our clear visuals. Breaking down a client’s financial health into visual assets is especially beneficial for virtual financial advisors who may not be able to showcase results like in-person advisors.
Preparing for the Future
As a financial advisor, staying informed about technological advancements in financial services is paramount.
Instead of fearing the impact of robo-advising on your practice, you can view robo-advisors as tools for growth. Use them to learn new skills to stay competitive. The financial services industry requires ongoing education and adaptation in the evolving landscape of financial advising.
New and innovative financial advisory tools and software are consistently being released. Stay on top of modern technologies that can help you better serve your clients.
Embrace Financial Technology with Asset-Map
So, will AI replace traditional financial advisors? No. The bottom line is that robo-advisors are only enhancements and not replacements for human advisors. These tools and other emerging technologies like Asset-Map can be used to complement your financial advising services. Stay on the cutting edge of technological advancements to remain competitive.
Explore Asset-Map’s features to see how leveraging visual tools complements your services and supports collaborative client conversations. With our suite of visualization tools, you can better integrate robo-advisors and boost client engagement. Schedule a demo today.
