Go Go Robo-Advisor

When we think back to the history of investing, a lot has changed the landscape over the last 40 years. The advancement of communication and technology has completely transformed the process of investing. Investment options once reserved for the rich are now accessible to more people. More recently, a new entrant has made a big splash – the Robo-Advisor.

A question we are asked is, “how do these ‘robos’ change the investing landscape going forward? “

  • Firstly, what is a robo-advisor? It is a company that takes your money and invests it automatically in a portfolio according to your risk tolerance. Typically, they are using exchange-traded funds (ETFs), which are similar to mutual funds, except they are traded like a stock on the market. 
  • The name robo-advisor can be misleading, because it’s not actually a robot building your portfolio, but rather, ‘robo’ refers to an automated system that employs algorithms to build your portfolio according to a questionnaire. This type of investing is commonly known as passive investing where there is less of a hands-on approach to building your portfolio; thus, possibly reducing the management fee, but not necessarily increasing the return. 

The strength of a robo-advisor is that it takes the emotion out of building a portfolio, but they are now finding that the robos are missing a key component – personalized advice. Yep, the idea that you are different than your neighbour in more ways than your investment risk tolerance still holds true.

To date the robo industry hasn’t been able to mimic the value good financial advice. Research has shown that clients benefit from advice. A recent study found a significant benefit to personalized advice: 

  • Clients with financial advisors gain 69% more value in their investment assets over those who haven’t received advice (over a four-year period);
  • Over 15 years of working with an advisor, a client will gain 290% more value on their investment assets compared to those who haven’t received advice;
  • They also found that rates of return are 3% higher than those who do not work with an advisor.

There are many reasons for this remarkable difference in how advice can help build wealth. A few of the many reasons they found are:

  • Advisors help clients with how and where to invest which can accelerate wealth accumulation
  • Advisors help clients manage emotions at key times so the clients didn’t make drastic changes during volatile markets. 
  • Advisors help clients building wealth in a way that is tax efficient. As we all know the taxman takes a large percentage of our income and profits. The more we manage tax the better off clients are.

The value of advice goes beyond what investment vehicle you are in. It is equally as important how you build your wealth efficiently and as uniquely as you are that we feel can make a significant difference.  

We partner with our clients to discover the right financial options are best during each stage of life. 

If you have any further questions, or would like more information, don’t hesitate to reach out.