Should You Add A Robo-Adviser To Your Financial Team?
Diversification is always a good idea. And one way to do that could be to diversify how you get your advice.

Popular culture often takes an “us vs. them” attitude toward technology.
Think about the menacing messages of 2001: A Space Odyssey, Blade Runner or Terminator.
Machines are bad and want to take over; people are good and must control them.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
In real life, though, technology isn’t nearly so scary — unless, of course, you’re worried a robot will take away your job.
I’m not. Though some may see the growing popularity of so-called “robo-advisers” as a threat to financial professionals, I’m embracing this method of investing as a way to further diversify a client’s portfolio and look out for his or her best interests.
Typically, when advisers talk about diversification, they mean taking a broad approach to the products we invest in: stocks, bonds and mutual funds, commodities, real estate, etc. But we also can diversify our portfolios by looking at how we arrive at our investment decisions — and algorithm-based investing offers another opportunity to do that.
It’s a complement to what investors and their financial advisers do — not a substitute. In this form of investment diversity, you have the computer, the money manager and the actual account holder all making choices, but doing it different ways.
And my clients love it. It’s probably the most popular thing we do, because it takes the emotional angst out of day-to-day financial decision making. The program we use has been around for 15 years, and we’ve been using it for three.
Taking emotions out of the way
People realize their decisions are sometimes going to be wrong. They’re often based on emotions — greed, fear, pride, regret — which can lead to buying high and selling low. And though an adviser’s recommendations are much more objective (especially if the adviser is a fiduciary), we can also sometimes miss the mark.
The computer — though emotionless and completely objective — can be wrong, too. But with three parties making decisions, we can limit the chances of everything being wrong at the same time.
Here’s an example of human vs. robo investing:
Let’s say your favorite burger chain puts out a press release that says in the first quarter it sold more of its popular namesake burgers than ever before. You might think, “Wow! Big Jack’s Burgers is doing great. I’m going to get in on that success and buy some stock.”
That’s a decision based on emotion.
But the computer doesn’t really care how many Big Jacks were sold — after all, they could have been selling burgers for a penny, just to hit a number. The computer looks at all the data — revenue and expenses, trends and statistics. And, based on certain triggers, it might decide to buy some Big Jack’s shares, or it might decide that because other people responded emotionally, the stock is overbought and now would be a good time to sell.
Meanwhile, your adviser might suggest something completely different that’s a better, safer, less expensive way to go.
Putting robos to work for you
Two or three heads are better than one — even if (or maybe especially if) one of them “thinks” in code. Robo-advisers are largely programmed for growth, meaning they will use fancy algorithms and a computational approach to help clients grow their investments. If someone has money set aside just earmarked for growth, money they are comfortable taking an aggressive approach with, that might be well-suited to management via a robo-adviser. This approach is especially complementary to a buy-and-hold strategy with active human management, because your more aggressive investments won’t be subject to higher trading fees and will be counterbalanced by more conservative strategies that have an actual — as opposed to virtual — eye on them.
There are numerous ways for you to integrate this approach with your (human) financial adviser — perhaps this is a service they already offer, or perhaps it is a matter of giving them the ability to access and monitor an app-based or online strategy. No matter what specific integration approach you use, a true adviser has a fiduciary duty to explore the most appropriate investments for their clients. Nowadays, this certainly can mean robo-advising and the low fees associated with it. An adviser’s reluctance or outright refusal to include any robo-advised assets or their failure to otherwise research a variety of alternate options is not consistent with a fiduciary duty, and would keep them from being able to give you a true comprehensive look at your portfolio.
Will robo-advisers replace human advisers? Maybe, someday, when it comes to the investing piece of what we do. It’s efficient and effective.
But robo-investing has its limits. It can’t — or shouldn’t — perform the other tasks we manage for our clients as part of a comprehensive financial plan. Particularly for those nearing or in retirement, the kind of income, tax and legacy planning we do is essential.
Robo-investing is a tool. Or maybe, to take it a step further, a valued member of the team. Instead of fighting the future, we’re working cooperatively with it.
Kim Franke-Folstad contributed to this article.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Michael R. Andersen is the founder and president of Andersen Wealth Management, a Registered Investment Adviser. He is an Investment Adviser Representative and a licensed fiduciary. A firm believer in financial education, Andersen holds regular informational seminars for clients and the community, and he is the host of the "Wise Money" radio show.
-
Stock Market Today: Growth Concerns Drag on Stocks
Forward-looking commentary from a major retailer outweighed its backward-looking results as all three major equity indexes retreated on Thursday.
By David Dittman Published
-
Why Alibaba Stock Is Soaring After Earnings
Alibaba stock is higher Thursday after the China-based e-commerce platform beat expectations for its fourth quarter. Here's what you need to know.
By Joey Solitro Published
-
Stressed About Doing Your Taxes? Use These Easy Tips to Cope
If the thought of filing your taxes puts you on edge, you're not alone — nearly 65% of Americans say they're stressed during tax season. Here's how to cope.
By Cynthia Pruemm, Investment Adviser Representative Published
-
Three Ways to Get Your Finances in Better Shape
Want fitter finances this year and beyond? Start by making full use of all your workplace benefits — from 401(k)s to budgeting apps and wellness programs.
By Craig Rubino Published
-
Rethinking Income When You Retire: No Paycheck, No Problem
When you retire, you'll need to adjust to the reality of depending on assets instead of a regular paycheck. For that, you'll need a new financial strategy.
By Joel V. Russo, LUTCF Published
-
How to Support Your Parents Without Derailing Your Finances
Putting your aging parents' financial house in order can give you a clearer picture of where they need support and how to balance that with your own plans.
By Vincent Birardi, CFP®, AIF®, MBA Published
-
Here's How Estate Planning Can Make Your Retirement Easier
These estate and legacy planning tools and strategies can help lower your taxes, protect your wealth and more, leaving you to relax during your golden years.
By Cliff Ambrose, FRC℠, CAS® Published
-
Why 'Standard' Digital Background Checks Can Be So Unreliable
Missing online data, as well as stringent federal and state privacy rules, make it difficult to discover a prospective employee's or tenant's criminal past.
By H. Dennis Beaver, Esq. Published
-
Are You a High-Income Earner? Three Unexpected Reasons to Save More Than You Think You Should
High-income earners sometimes put off saving because they think they have plenty of time and money to do it later. That's not always the case, though.
By Eric Roberge, Certified Financial Planner (CFP) and Investment Adviser Published
-
How Financial Professionals Can Empower Their Female Clients
These three strategies can help advisers better serve women as they navigate unique financial challenges and build confidence.
By Jake Klima Published