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Entering the Era of the Robo-advisor

BY John Easton, Director of Wealth Management
February 7, 2017

Header - The robo-advisor: friend or foe?

The advent of the robo-advisor is shaking things up in wealth management. In the last three years alone there have been over a dozen robo-advisor websites created in Canada, with WealthSimple and JustWealth to name two. The rise of FinTech is undoubtedly going to change the way traditional advisors work, but rather than let new technology shake things up, it’s those who embrace these changes and turn them to their advantage who are going to prosper.

A few of the benefits of Robo-advisors for investors

From the point of view of an investor, a robo-advisor is an attractive option for several reasons. First they are perfect for investors with modest amounts of funds to invest as they charge lower commissions than if they were to use a real human advisor. It should be noted that lower commision charges are quite the draw, especially as Canadians pay some of the highest mutual fund fees in the world at 2.42%.

Second,  robo-advisors also provide a logistical benefit as they remove the headache for individuals that comes with managing their own portfolio, choosing which funds to invest in and moving small amounts of money around. It’s worth noting that robo-advisors may seem like the only option for investors with modest funds to invest, as those investors often hold the perception that traditional advisors want to work with those who have $100,000 or more of liquid assets.

The emotional benefit of a human advisor

At first glance, a robo-advisor looks like a very attractive option, especially if you’re a first time investor looking to try your hand at investing smaller amounts of money. While this is the case, it can be easy to forget the crucial role of an advisor which is to give advice. Robo-advisors leave investors to their own devices, which isn’t always necessarily good thing. In fact in a lot of cases it definitely isn’t, especially when human emotion comes into play.

People invest as they want to see their hard earned money make them even more money. The trouble is that we are emotional creatures capable of making irrational decisions. When we see the slightest drop in the markets we want to move our hard earned money around so that it’s safe or to something else that will make us even more money. The reality is, investing is the long game and markets fluctuate, but that doesn’t necessarily mean investors should move their money around so often.

This is where the real benefit of third party advice comes in. Financial Advisors are experts in their field and seasoned professionals who know what they are doing. They will invest your money in line with your goals and most importantly Advisors aren’t influenced by emotion. When the markets go down their course of action would be to weather the storm. How many individuals can say they would have as much self control in  a similar situation?

Combining real-life and virtual advice

This topic presents itself as quite a dichotomy, but the advent of the robo-advisor can also present a huge opportunity for advisors. One example is that advisors can use this technology to streamline their own processes and help serve their clients better. By employing strategies that utilize new technology in the industry, advisors can focus on managing their existing clients and prospecting for new ones. If you’d like to find out more about how to navigate you way through the era of the Robo-advisor, watch our on-demand webinar today. 

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