The Low-Down on Automated Investment Advice

In this day and age, many of us rely heavily on automated advice. Whether we are asking Siri about the weather or trusting our Maps app to get us where we need to go, we often accept automated information without question. However, when it comes to wealth management services in Salt Lake County and the surrounding areas, perhaps we should understand the benefits and drawbacks of automated advice before trusting our financial situation to it.

The Lure of the Algorithm

Recently, a study was conducted where participants were given a handful of investment situations, accompanied by investment advice. In some situations, they were told the advice came from an online algorithm, while other times they were told the advice came from a human advisor.

Not surprisingly, the survey takers repeatedly reported having more confidence in the algorithm than in the human advisor. Even when they were told that the advice given resulted in poor results, a majority of people continued to favor robo-advisors over human experts.

What’s going on there? Why are intelligent people more apt to trust an algorithm than the counsel of a human being with professional training?

We’ve outlined a few reasons why automated financial advice is appealing in this infographic.

True North Wealth 2019 Infographic.png

For many people, especially those with smaller accounts and more straightforward financial lives, a robo-advisor might be a great start and a good fit; however, there are a couple of things to consider before committing to a robo-advisor. 

  • First, the algorithms used by robo-advisors are created and designed by humans. This human element means that they may not be as infallible as we assume. Even two automated systems can provide different investment advice; therefore, it is important to do your research and seek second opinions.

  • Additionally, real-life, in-person financial advisors provide personalized investment and wealth management benefits that are impossible to achieve through a generalized algorithm. You won’t find a robo-adviser who will look at your tax return each year and provide tax strategy. A robot won’t listen to and understand your fears about the next market downturn, or help you find the lifestyle balance between saving more money or spending it. 

Many families’ financial lives contain far too many moving parts for a standardized algorithm to grasp fully. Thus, it’s likely you will still find that the most effective wealth management approach is one that can be catered to your individual circumstance. 

What to Do with This Information

As you consider all forms of financial advice, consider your specific needs and circumstances. Automated systems may, in fact, be effective for smaller cases and can be used as a stepping stone to a human advisor. The more complex your case, the more room there is for a human adviser to add value.

At TrueNorth Wealth, we are fee-only financial planners serving Utah County and the surrounding region. We are committed to helping you along every step of your financial journey. We provide expert, in-person services that will enable you to achieve your financial goals.

When it comes to financial planning, there's really no substitute for the human touch. To discuss your future with a highly-trained human who's in tune with your needs and goals, contact us today.

1) https://www.wsj.com/articles/why-investors-should-be-wary-of-automated-advice-11560533307