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Why a Robo-Advisor Can’t Replace a Real Financial Advisor

April 14, 2015
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By James Brown

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What are robo-advisors, and should you consider using one instead of a traditional financial advisor?

Robo-advisors are online wealth management sites that provide automated investment services. They use computerized algorithms to manage mutual funds, exchange-traded funds, index funds and other retirement products. The generally follow a passive investing strategy and try to minimize risk.

These online platforms are relatively low cost and have different pricing models. Those are two reasons they have gained in popularity in recent years.

But I would argue that they are not for everyone; nor do they replace the individualized services of a top-notch financial advisor.

Your finances are an immensely personal issue and an emotional one as well. Next to your overall health, your financial health will have a bigger impact on your life than almost anything else.

Trusting your finances to a robo-advisor leaves you with huge portions of your financial life completely unattended. A financial advisor does so much more than merely allocate your portfolio.

So what can a real advisor do for you that a robo-advisor can’t? Here are a few key differences.

A broader product mix

Real advisors offer investment products that are broader than the limited institutional offerings most robo-advisors can get. If the mutual funds a robo-advisor offers don’t suit you well, then tough—you’re going to get invested in them anyway. A human advisor, on the other hand, will find the best fit for you.

Individualized service

Real advisors know you personally. Your advisor should be like your doctor, someone who knows you and your family not just out of comfort and politeness but because fuller knowledge of who you are is important to the way your money should be managed and the advice you should receive.

If you state on a questionnaire that you want your money to grow and it will be invested for the long term, your robo-advisor may put you in a fund that is more aggressive than you’d like. But your personal advisor knows you and understands your discomfort with volatility. He or she will help guide you toward a suitable fund.


Real advisors answer the phone when you call or return your call quickly. You don’t have to “press 1 for English” or “say or type your account number” repeatedly to reach a real advisor. A robo-advisor won’t answer your phone call. You’ll get someone in a call center, probably overseas, reading a script with no knowledge of your particular situation.

Active account management

Real advisors do much more than rebalance your portfolio. They can manage your money and help you with insurance products, estate planning, college funding, taxes, real estate and many other financial issues that a robo-advisor simply will not help you with.

A fiduciary responsibility

Real advisors have a “fiduciary” standard. This means they are legally required to give you the best advice possible. Even though robo-advisors must be registered investment advisors, regulated by the Securities and Exchange Commission, they are only held to a “suitability” standard. This means they will offer or suggest investments to you that are merely suitable, but not the best. They may steer you toward the investments that make them the most commissions, not toward what will truly serve your best interests.

Real advisors are there for you when you need them. When PIMCO co-founder Bill Gross quits the investment management firm abruptly and one of that company’s major bond funds is hit by investor outflows, your robo-advisor is not going to call you to explain what’s going on; your real advisor will.

You want an advisor who will answer the phone when you get a confusing letter from the bank and walk you through what it means. You want someone who knows you personally and understands your short- and long-term financial goals.

Your finances are too important to leave in the hands of a robo-advisor. To make the most of your financial life, you need a real financial advisor.