Silicon Valley’s faith in technology has gone too far.
That may sound surprising coming from someone who has lived in the Valley for 40 years.
Don’t get me wrong: I’m still optimistic about technology and its power to improve people’s lives. After all, I’ve dedicated my career to that effort.
But technology isn’t the cure-all Silicon Valley has made it out to be -- and it will never replace human interaction.
Take airline travel, for example.
Booking a flight online is a dramatic improvement over talking with a reservations agent. But what about the last time you tried to get home after a canceled flight?
Was the airline’s online chat or automated phone system helpful, or were you desperate to talk to a human?
How much might you have paid for the privilege?
As someone who has invested a lot of time at the intersection of finance and technology, I can confidently say there’s no industry that needs that critical combination of people and technology more than wealth management.
Anyone who tells you that tech has all the answers -- or that people do -- is pushing an agenda you should challenge.
Pitting robots against humans may make a good story, but it doesn’t make for good financial advice.
Technology In Wealth Management: A Snapshot
Technology has made it easier than ever for people to save for retirement.
That is unquestionably a good thing. But that same technology also comes with real drawbacks.
Let’s start with the positives.
Before the rise of technology, investors just starting off had few options that were both low-cost and objective.
Sure, there were plenty of people willing to offer advice, but in most cases, this advice was expensive, and it often came with hidden fees and conflicts of interest.
Today, robo-advisors provide people who are just beginning to invest with access to unbiased advice, while free apps give them budgeting and savings tools.
Many of these online options have transparent fee structures.
This is a welcome contrast to a lot of so-called low-cost broker-dealers who pad their low fees by pushing products that earn them commissions, whether or not those products are the best options for the investor.
Another attribute of robo-advisors is that they turn investing and saving into an automated process, requiring little to no investor involvement.
All you need to do is answer a short questionnaire that about your age, risk tolerance and general goals, and an algorithm will give you a mass-produced set of investments.
While it’s incredibly easy, anyone who answers the questionnaire even close to the way you do gets exactly the same investments, regardless of their lifestyle or retirement dreams.
This can be a good solution for smaller investors with simpler needs.
For investors with more complicated financial situations, however, this automated, one-size-fits-all approach simply doesn’t work.
As the saying goes, more money, more problems. Widgets and tools alone aren’t enough to support sophisticated financial lives.
Technology can’t dive into the nuances of estate planning or account for sudden life changes like paying for eldercare or buying a second home. And technology can’t offer you perspective on whether investments like REITs or cryptocurrencies make sense for you or are simply passing fads. That requires a human who understands your personal goals and your unique financial situation.
Technology Can’t Solve For Emotion
Saving for retirement is an extremely emotional process because it’s inextricably linked to people’s hopes and dreams. But too much emotion can be a retirement killer.
Some claim that technology has revolutionized wealth management by eliminating the emotional element of investing.
By automating your investing and savings decisions, you’re less likely to buy -- or sell -- on a whim.
While this is certainly true in theory, it’s not quite so clear cut in practice.
In the last few years, we’ve been in a raging bull market with relatively low volatility. Investors are largely pleased with their returns, so they trust their robo-advisor to perform.
But what goes up must go down, and whether it's in weeks, months or years, we will see a bear market. When a correction arrives, people’s emotions will kick in, with many investors overriding automation and pulling their money out of the market at exactly the wrong time.
Even blips on the bear market radar send people running.
Just think about headlines from February when the Dow dropped more than 1,000 points in a few hours and people scrambled to make changes to their robo accounts -- if they were able to log in.
When you’re trying to prevent emotional decisions, humans matter. Investors want -- and often need -- a familiar voice to remind them that they’re investing for the long term and keep them on the path to their ultimate goal.
They need a supportive and soothing third party with an intimate understanding of their financial life to explain why timing the market is not a long-term success strategy.
In fact, it’s just the opposite: Nothing will destroy your retirement plans faster.
Automation can attempt to mimic parts of the human touch, but it can’t replace it.
Human + Tech = Check + Balance
Advisors and executives on both sides of the “human vs. robo-advisor” conversation often neglect to confront one shared reality: Neither, on its own, is perfect.
The best way to give comprehensive, personalized advice is to bring technology and people together.
Tech tools and the data they comb through give advisors a more nuanced view of their client’s finances. This, in turn, lets the advisor use their human insight to develop “what if” scenarios and make better, more comprehensive recommendations.
When it comes to your wealth management, it doesn’t have to be “riches to the robots” or “all hail the humans. ”There is, and will continue to be, room for both.
