Should You Take Financial Advice From A Robo Adviser?
The digital world has made it possible to do many things online, and that applies in financial planning as much as anywhere else. It’s now possible to obtain financial advice online from what are often called robo advisers. So in this article we will look at robo advisers.
First of all, what is a robo adviser?
Robo advisers are basically heavily automated online wealth management services. They use digital technology to enable you to invest online without consulting a ‘human’ financial adviser.
Different robo advisers work in different ways but they mostly use an online questionnaire to find out a little about you. Then they use an algorithm to suggest investments you might be interested in. You can then invest according to those suggestions or, if not, whatever you decide to invest in.
So what are the advantages of using a robo adviser? Here are a few, which can make them seem a very appealing option:
It’s quick and easy. You can use them from anywhere, anytime.
It seems cheap. Robo advisers make a point of their competitive fees.
Perhaps the biggest attraction is that they make investment products that were once only available to the biggest investors available to everyone, even those with only a small amount to invest.
Now let’s look at the disadvantages of investing using a robo adviser:
They don’t get to know you as fully as a ‘real’ financial adviser does. They only ask for a limited amount of information. So they only have a very limited amount of information on your investment objectives and your attitude to risk.
There’s nothing to stop you giving them the wrong information, even if accidentally. And if you get it wrong the information they give you could be wrong.
There’s nothing to stop you ignoring or overruling their suggestions. Nobody to say ‘hold on a minute, are you sure you REALLY want to invest in this?’.
In most cases they only offer a limited range of investment products – frequently just passive or lower-yielding ones. What they suggest as best for you may only be the best for you from what they offer, not what is actually best for you and your investment objectives.
And this is important to know: Most robo advisers don’t offer full financial advice. Often what they offer is just what is known as simplified advice, or even just guidance.
So to answer the question we posed at the start of this post. Should you take financial advice from a robo adviser?
Robo advisers are really intended for those who have fairly simple financial affairs and are sure about what is right for them. But the answer is that you really can’t get proper financial advice based on a thorough personal evaluation of your circumstances, future objectives and attitude to risk from a robo adviser. For that, you still need to take advice from a ‘real’ human financial adviser.