Robo-Advisors vs Human Financial Advisors

By Will Nelson, Managing Director - Head of HilltopSecurities Independent Network

The rise of robo-advisors has given some humans pause, but we are not obsolete yet. Robo-advisors provide automated investment management services online using algorithms and mathematical formulas with little or no human interaction. But, when it comes to reaching financial, retirement and personal goals, the human touch still matters. Though there are some advantages to robo-advisors, namely cost and convenience, in many circumstances, they are outweighed by the value of a human financial advisor. It turns out, the human touch is valuable when it comes to motivation, accountability, reassurance and flexibility.

Let’s start by acknowledging that robo-advisors work in some cases. If you are looking for an account where you can just set your money and step aside, then robo-advisors are the way to go. But, if you are looking for even a little more, human financial advisors are the better choice, and these are the reasons why:

Motivation - It can be difficult to save. Sometimes the things we want right now seem more valuable than what we will need in the future. If it’s really important, we can catch up later, right? Wrong. Every time we choose to spend now instead of saving for later, we lose money (e.g., through compounded interest, currency appreciation, etc.). We may all know this academically, but it can be hard to apply in the face of a new boat, and that is when a human advisor can step in and remind us to pay ourselves through saving, not spending.

Accountability - An advisor can help keep you on track to achieve your goals and corral you when you go astray. Just like motivation, it is much more effective when a human holds you accountable than an alert on your phone or an automated email in your inbox.

Reassurance - Investing preferences cycle through wanting professional advice to taking a DIY approach, but professional advice has an advantage when it comes to big market movements. Long-term advisors are intimately acquainted with your finances and know how volatility will affect your portfolio. They also know how to rebalance and correct for those market changes, which is extremely reassuring.

Flexibility - When you invest with a pure robo-advisor, you answer some questions, put your money in an account, and that’s it. Your risk tolerance and asset allocation are determined by an algorithm based on your answers to the questionnaire — you have no further involvement than funding the account. If you want any more than that, the system isn’t able to accommodate you — you will need a human advisor.

There's No App for That
There are some basic guidelines to consider when you are choosing the kind of investment advice you want:

Robo-advisors - Best if you are a tech-savvy, inexperienced investor with uncomplicated financial needs and a low account balance. Robo-advisor investors typically don’t want involvement with an advisor or the investment process and prefer interacting through technology alone.

Financial Advisor - Suited to everyone, but better than robo-advisors if you are an experienced investor or want more control over your investments and have more funds to invest. If you have complicated planning needs, such as estate planning, health care or education, or an employer-sponsored retirement account, which is managed by an investment trustee, a human advisor is the wiser choice.

Interested in Talking to a Human about Your Financial Advice Needs?

HilltopSecurities has many human financial advisors ready to help you find your definition of success and reach it. We offer straightforward advice and customized financial plans based on thoughtful consideration of your needs and goals. To learn more about HilltopSecurities and our goals-based planning approach, the Certainty Circle of Life, please contact your HilltopSecurities financial advisor, or find an advisor near you.

Hilltop Securities Inc. (HTS) is a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. Material presented herein is for informational use only and reflects the views of only the author. This information may not be duplicated or redistributed without prior consent of HTS, and distribution or publication of this material does not represent a solicitation to complete a financial transaction with the firm. Though information was prepared from sources believed reliable, HTS, does not guarantee its accuracy or completeness. Securities offered by HTS (1) are not insured by the FDIC (Federal Deposit Insurance Corporation) or by any other federal government agency; (2) are not bank deposits; (3) are not guaranteed by any bank or bank affiliate; and (4) may lose value. HTS is a wholly owned subsidiary of Hilltop Holdings Inc. (NYSE: HTH) located at 1201 Elm Street, Suite 3500, Dallas, Texas 75270, (214) 859-1800. Past performance is no guarantee of future results.