Where Will You Get Your Financial Advice in the Future?
Digital or human? The debate is on in the popular press and among financial advisors. At Betterment, we believe it's from both.
Automated investing makes it simple for every investor to achieve optimized returns, without paying an advisor.
For complex money plans, tax planning, insurance and estate planning, a financial advisor can help implement and execute a plan.
For some, it’s talking to a wise uncle or reading books. For the rest, it’s paying a financial advisor. To be sure, sourcing dependable financial advice is often a matter of comfort and cost. But in the future will any of these options prevail?
If you’re already a Betterment customer, you know part of the answer. Technology has made access to personal investment advice and an optimized portfolio available to anyone with an Internet connection—at an extremely low cost. With algorithms at the heart of our investing service, some in popular media have dubbed the success of Betterment and others like it as “the rise of the robots” or automated investing.
Ultimately for investors, automated investing will mean significant cost savings; add to this the evidence that index-based portfolios lead to the best returns over time. Together these facts are nudging financial advisors to re-consider what they are offering to their clients.
And this has the industry buzzing: How far will the movement go? The question was asked in a long roundtable in January 2014’s Journal of Financial Planning. “These platforms are going to be a financial planner’s friend,” said Bill Winterberg, a leading financial tech publisher. And likewise, our goal is to supplement the work advisors do.
Automation for investments, humans for life plans
For investors, this means new consideration about what they want a financial advisor to accomplish for them. It could mean using a financial advisor who acts as much like a financial coach as a banker, helping navigate around insurance, taxes, estate planning, complex trust situations, or generational wealth transfers. And many advisors are actively renewing emphasis on their whole-finance services to reflect the new landscape of investing.
Michael Kitces, director of research for the Pinnacle Advisory Group with $1 billion in assets under management, has been a leading voice about the technological sea change within the financial advisory industry. In a recent visit to the Betterment offices, Kitces suggested that a good advisor helps a client think as much about income as outflow, for example an advisor could go so far as to help a client pursue a salary negotiation.
“Helping negotiate a 5% raise will dramatically increase your investing power, more than any financial product.” “In the future, good financial advisors will help people execute and implement—doing a good job at advising is not an informational problem,” he said. “Helping negotiate a 5% raise will dramatically increase your investing power, more than any financial product.”
At Betterment, we envision a future where investing might look something like high-end medicine or the travel industry. Our technology does the quantified research, execution and maintenance at a low cost—and a human advisor provides the deskside manner and highly circumstance-specific advice for those who require additional services.
To be sure, we’re all at the beginning of a new era, where automated investment management works side-by-side with traditional financial advisors.
“If your financial advisor is merely acting as a gatekeeper to asset allocation and fund selection— things I deem to be commodity services,” Steve Lockshin, a Barron’s top-rated financial advisor, told Betterment in an interview earlier this year, “then consider using automated investing and saving money.”
Do you use a financial planner or advisor in addition to your Betterment account? Or have you left a financial advisor to manage your own finances? We’d love to hear your thoughts in the comments below.
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