The Bionic Advisor
The Six Million Dollar Man was a television series during the mid-seventies about an astronaut who was severely injured during a plane crash and was re-built to have super-human strength. His new bionic body parts included both legs, an arm, and an eye making him part human, part machine. The opening monologue for the show was: "Gentlemen, we can rebuild him. We have the technology. We have the capability to make the world's first bionic man. Steve Austin will be that man. Better than he was before. Better...stronger...faster."
Robo-Advisor programs are digital platforms with little, to no human interaction.[1] They’re attracting billions of dollars as investors look for low-cost, efficient investment options. Betterment, Wealthfront and Personal Capital are a few of the popular programs and together they manage more than $22 billion. Individuals log-in to a website, complete a questionnaire and then a computer algorithm will build them a “personalized” portfolio. The robo-advisor then manages the account based on the client’s profile.
These programs appear new, but they’re not. In the early ‘90s most brokerage firms like Morgan Stanley offered managed account solutions based on a client’s goals and risk tolerance. After a client completed a questionnaire a portfolio of mutual funds was invested for them and rebalanced because of market moves. These programs were rules driven built on computer algorithms. They worked well especially if a client committed to the program through rising and falling markets.
The difference between the old and new robo programs is the technology. The advancement in technology has allowed these programs to thrive.
What do you get when you combine a human advisor with a robo? A bionic advisor! A Certified Financial Planner coupled with a robust technology platform may be better, stronger, faster than a standalone robo. The human component will allow your advisor to meet with you in person and help verbalize your goals and direct you to the best investment solutions. In addition to investment selection, he can give you guidance with your company retirement plan, insurance needs, educational accounts, philanthropic activity, and much more.
Today, most independent advisors have access to dynamic trading platforms. Model driven, goal-oriented portfolios coupled with risk tolerance and rebalancing software allow advisors to create their own robo programs. Access to this robust technology allows your advisor to produce rules-based investment programs founded on your goals.
To work with a bionic advisor, consider the following items.
1. Make sure your advisor is a Certified Financial Planner practitioner who’s a fee-only, fiduciary, registered investment advisor.
2. Complete a financial plan so your advisor can help you quantify your hopes, dreams and fears. You can link all your accounts (checking, saving, credit, investment, etc.) through aggregator websites to update your plan in real time.
3. Stress test your portfolio to see how it may perform in up or down markets. Risk tolerance software will also help your advisor design a portfolio for you because of your risk level and financial goals.
4. Invest in low cost mutual funds managed by Dimensional Fund Advisors or Vanguard. Controlling your cost will allow you to keep more of what you earn.
5. Review your plan and investments by talking to your advisor on a regular basis.
Successful investing requires a combination of all the tools and resources available to you and rarely is it an either/or scenario. A bionic advisor can’t run 60 miles-per-hour, but he can help you build a solid portfolio!
We are all now connected by the Internet, like neurons in a giant brain. Stephen Hawking
Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX. For more information please visit www.parrottwealth.com.
3/26/2018
Note: Past performance is not a guarantee of future returns. Your returns may differ than those posted in this blog and investments aren’t guaranteed.
[1] https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp