Read This Before Putting Your Finances in the Hands of a Robo-Advisor

Leon Neal/AFP/Getty Images
Leon Neal/AFP/Getty Images

As we’re all well aware, technology is finding its way into every facet of our lives. We can track our productivity, schedule our days down to the minute, and even have our cars drive us around — and within a few more years, you can expect even more aspects of our lives to become ever more integrated. But there is something a tad bit unnerving about artificial intelligence. In the same way that a lot of people are uneasy or unsure about actually handing over control of their Tesla to the Tesla itself, there are other things that we’re not quite comfortable with handing over the proverbial keys.

Case in point: our finances.

Many people use the services of financial advisors to guide their decisions involving money. These advisors can be incredibly valuable resources, and without them, a lot of people would simply miss the mark in achieving many of their life goals. And, as technology and finance converge, we’re seeing the birth of an all-new type of professional service in the form of robo-advisors.

Len Reinhart, chairman of Wealthcare Capital, and Jim Ashton, general partner with NewSpring Holdings, Wealthcare Capital board member and former division CEO of SunGard Financial Systems, were kind enough to take the time to discuss the advent of ‘robos’ in the financial world with The Cheat Sheet, and answer some questions.

Wealthcare Capital is on the forefront of the ‘robos’ revolution in some respects, with its Financeware software. This helps financial advisors work with clients using technology. By bridging traditional advising with technology, Jim Ashton predicts that we’ll be seeing a shift in investment strategies to a more “goal-oriented” plan, which would include laying out specific goals — like getting married, or saving for a child’s college education — and setting aside specific funds to reach each goal over a set amount of time.

With the ‘robo’ revolution in its infancy, we ran a few key questions past Reinhart and Ashton. With their answers, we’ve managed to put together some answers to the following questions regarding financial robo-advisors.

1. What are ‘robos’?

In a nutshell, a ‘robo’ is short for robo-advisor. These are essentially services provided by financial firms to help you manage your wealth. Using a automation and algorithm-based decisions, robos are meant to function — or manage a client’s portfolio — without the guiding hand of a human being. You can think of it as artificial intelligence, or a robot, running your finances.

A robo-advisor will basically let you put your finances and wealth management on autopilot.

2. How are they different from traditional advisors?

Aside from the distinct lack of flesh and blood, using a ‘robo’ in lieu of a traditional advisor basically takes the ‘humanness’ from the process. Again, it’s essentially putting your wealth management on autopilot, and letting the algorithms make the decisions to get you to a place where your previously established goals are within reach. You’re taking the monotony of weekly or monthly tasks out of the equation.

3. Who should use them?

It depends.

A clear answer here is millennials, or younger adults who are more accustomed to interacting with technology and computers than, say, actual human beings. We’re starting to see this in other industries as well; think how fast food restaurants are integrating artificial intelligences to interact with customers through kiosks (which also saves money in the long run). Robos give millennials a platform that they are familiar with, and that they can understand, with which to manage their wealth.

Others who would be interested, according to Reinhart and Ashton, are small earners, or those who don’t have a lot of money to invest. Traditional advising eats up a lot in terms of fees and time, and using a ‘robo’ can lessen those burdens substantially. Unless you’re a big-time investor with a lot of wealth, a ‘robo’ service may be something to check out.

4. What should we expect as ‘robos’ become more common?

Since the technology is still very young, we can’t be absolutely sure what will happen in the long run. But Ashton and Reinhart do have a couple of predictions. Chief among them is that the lower and middle classes will have improved and expanded access to financial and wealth management, which should be a good thing overall. With expanded access to professional services, more people will get help setting and achieving financial goals, and growing wealth.

On top of that, there should be some changes to the job landscape within the financial sector. But it’s not necessarily a bad thing, for those of you who hope to one day get into finance. Expanded services should lead to expanded demand for flesh and blood financial advisors as well. And the range of skills needed will be wider. As Ashcroft mentioned specifically, a student looking to get into finance may want to focus on another major, say psychology, and pair it with a finance minor.

There will be new ways to break into the mold.

Follow Sam on Twitter @SliceOfGinger

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