Robo-Advisors are a class of financial advisor that provides portfolio management services online with a minimal amount of human intervention. Wikipedia contends, that "It's the financial equivalent of booking an Uber on your phone versus standing in the cab line at the hotel."
In reality though, the Wikipedia comparison fails at a couple of things. First, it's the notion that I could be sitting at a sidewalk table in the afternoon sun sipping a beverage of my choosing whilst I Uber up a ride from my iPhone vs. standing in the summer heat, sweating out the lineage waiting for the under-air conditioned cab to arrive. I get it, that doesn't sound like a better deal than Uber'ing up my cab.
But, here's the analogy reality.....the difference between your Robo-choice and an actual advisor is really more like using Uber to get your cab or just asking the Ritz Carlton Concierge to get a cab for you isn't it? If it isn't, then the problems not that Uber'ing up your cab is better, its that you've got get a better Concierge.
The contention is that Robo-Advisors provide some real advantages to Consumers;
1. They use essentially the same tools that Real-Advisors use, and;
2. They can serve the underserved masses who either [a] don't meet the account minimums of Real-Advisors or, [b] can't afford the typically high fee structures of Real-Advisors
So, let's look at those two things.
First, they don't come close to using the same tools are Real-Advisors any more than neurosurgeons use the same tools as auto mechanics. (You know, that tool that "removes something.") At point of fact, they might use the same "analytical tools" as Real-Advisors, but not the same tools. Making the contention that the same tools are used is inaccurate at best, lest we consider that "conversation", "goal setting" or "understanding your risk tolerance", or "your feelings about money" or "your past behaviors and your predilections and behavioral biases" can simply be ignored. Reduced to it's simplest component parts, an interior designer is going to use the same tools no matter who you pick right? It's more or less going to come down to, paint, rugs, curtains or window coverings and furniture isn't it? Why muddy the waters by asking you how you feel about a certain style of furniture or paint color?
Removing personal bias isn't good work, it's just simpler work.
Secondarily, real-advice is expensive at really-expensive advisors, not at all advisors. Not at this advisor. And, not every advisor has an account minimum. The notion that only high-priced services result in effective outcomes is bogus, but that's in essence what you're doing when your contention is that there's only two flavors of advisors, Robo and High Priced. If the price of things was the sole determinant of much of anything, then every golfer out there would be swinging the most expensive clubs they could find and they'd all be on the PGA tour, because of course price and success are inexorably tied to each other. Bottom line is that you're either good at what you do or you're not. Your fee schedule (while often way too high) is a marketing decision in response to market factors, not an indicator of intelligence or ability.
There are many things surrounding the birth of the Robo-Advisor that I do agree with. I do think that as a rule, investment management fees in most instances are way too high, non-transparent and a bit over the top. I also agree that account minimums are problematic.
At Barry Capital we've solved the conundrum of pricing advice. And we can prove that "Robo" is a "no-no" for most people, and clearly not your only viable pricing or advice option.