Online financial advisors, or robo-advisors as they are popularly referred to, have been popping up on a regular basis. At their best they provide a convenient option for investors to get advice on investing, financial planning as well as other types of financial advice.

Robo-advisors are often a lower cost avenue than traditional human financial advisors. This can be attractive to investors with smaller portfolios than the minimums that are required by many advisors. Many of these folks might also be younger and more accustomed to buying all sorts of goods and services online. (For more, see: Schwab's New Robo-Advisor).

Does the rise of the robo-advisor portend the demise of the traditional bricks and mortar financial advisor? Here are some thoughts on how these two models might benefit each other and more importantly how the investing public might ultimately be better served.

Making Advice More Accessible 

One of the nice things about online financial advisors is the ease of accessing financial advice generally 24/7. This is a nice feature for those whose schedules do not conform to normal office hours or those who just like to deal with their finances at all hours. (For more, see: Is an Online Financial Advisor Right for You?).

The models and methodologies used by robo-advisors to provide investment and financial advice are often based upon the same models and methodologies used by traditional financial advisors in providing face-to-face advice. 

A number of full-service financial advisory firms have launched primarily online versions of their full-service wealth management offerings. Clients complete the data gathering process, open investment accounts and conduct virtual meetings, all online. These firms advertise that the investment and financial planning advice uses the same methodology as their more traditional offerings. (For more, see: Portfolio Management for the Under-30 Crowd).

The Human Touch Matters

The best robo-advisors do an excellent job of offering accessible financial advice based upon well-conceived financial algorithms and models. These models are based upon historical market data. They offer unbiased advice if applied correctly.

Unfortunately, actual human clients do not always behave in their best interests or operate in a completely logical fashion. Clients deal with emotions, such as fear and greed, which can cause them to deviate from even the best-laid financial plans. We saw far too many investors sell out at the depths of the financial crisis when they couldn’t stomach additional paper losses in their portfolios. All logic would have pointed to sticking it out but the very human emotion of fear told them otherwise. (For more, see: Online Portfolio Management, DIY or Fee-Based Financial Advisor: Which Is Right For You?)

The clients of many traditional financial advisors stayed the course in large part due to their advisors talking them off of the proverbial ledge. These clients found themselves to be far better off once the markets bottomed out in 2009 and began a rally that is now in its sixth year. Investors who sold out at the bottom sustained severe losses and in many cases never got back into the market to recoup those gains. Older investors saw their ability to retire in style eroded due to the fact that they made fear-based investment decisions.

The Best of Both Worlds

Combining the human touch of traditional financial advisors with the logic, fee transparency, methodology and accessibility offered by robo-advisors is a powerful combination for investors. Clients can access their portfolios and much of the advice they may need online but can still receive the hand holding and personal advice they need from a human. This can make all the difference as their situations evolve and when market corrections occur. (For more, see: How Advisors Can Help Clients Stomach Volatility).

Going forward the best financial advisory firms will combine the best of client-centered technology and the benefits of the human touch in providing advice. For example, many traditional advisory firms already provide secure client portals on their sites where clients can login and view their account information and other data such as white papers and videos on a variety of topics. Some also include client communication tools such as mobile apps to facilitate client communication. Likewise, some robo-advisors offer the option to chat or speak with a financial advisor. (For more, see: How Financial Advisors Can Adjust to Robo-Advisors).

Choosing the Right Advisor

Robo-advisors are rightly challenging more traditional financial advisors with their transparency, lower fees and accessibility.  For far too long it seemed that the main choice for investors with small accounts that didn’t meet the minimums of many larger fee-only advisory firms was to go with registered reps that made all or a large portion of their living from commissions from the sale of financial products. (For more, see: Paying Your Investment Advisor - Fees or Commissions?).

Robo-advisors are an alternative for investors of all ages who may have a lower level of assets to invest and who want advice based upon models and algorithms. While younger investors seem like the most logical target market tech-savvy investors of all ages might find themselves attracted to these online advisors.

Investors should be aware that just like more traditional financial advisors robo-advisors are not all the same. Some, such as LearnVest, offer relatively inexpensive services while others, such as like Personal Capital, are targeting investors who are a bit more up market. (For a list of robo-advisors, click here.)

The advent of the robo-advisor as well as the technological advances in the traditional advisor world add to the criteria clients will need to evaluate when selecting the right financial advisor for their situation. 

Questions to Ask

In selecting a financial advisor investors should consider these questions:

What is your financial situation? If your situation is fairly basic and you are comfortable with a mostly online experience then a robo-advisor might be for you. If you need more hand holding and have more complex financial issues, then a traditional bricks and mortar advisor might be more appropriate. (For related reading, see: A Guide to Choosing the Best Robo-advisor).

Does the prospective advisor’s expertise match your needs? This is part and parcel with understanding your financial situation and the type(s) of financial advice you need.

What are the advisor’s fees and how are they paid? This is important for both traditional and online advisors. You should understand what you will be charged and all sources of an advisor’s income. Do they charge fees, commissions or both? (For more, see: Paying Your Investment Advisor - Fees or Commissions?)

How do you want to interact with your advisor? If you like the idea of using some of the online tools that are increasingly available this should be a factor in choosing an advisor. Likewise if you want a more human touch and hand holding. (For related reading, see: Trends Challenging Financial Advisors).

The Bottom Line

The rise of robo-advisors and advances in technology among traditional financial advisors have made financial advice more accessible for many investors. Combining the two can offer the best of both worlds. (For more, see: How Technology Helps Financial Advisors).

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