No sub­sti­tute for a hu­man touch

The Weekly Advertiser Horsham - - News -

You won’t be sit­ting down to talk money with a cute lit­tle hu­manoid ro­bot any­time soon, but de­spite the lack of ac­tual ro­bots, ‘robo-ad­vice’ is a grow­ing el­e­ment of the financial planning sec­tor.

Per­haps more ac­cu­rately called com­puter-gen­er­ated ad­vice, robo-ad­vice en­tails log­ging into a web­site and an­swer­ing sev­eral ques­tions about your financial sit­u­a­tion, your goals and your at­ti­tude to risk.

A com­puter al­go­rithm then gen­er­ates a state­ment of ad­vice, set­ting out rec­om­men­da­tions. And once your money is in­vested, some robo-ad­vice pro­grams can mon­i­tor your port­fo­lio and au­to­mat­i­cally ad­just if nec­es­sary.

So, is time up for financial ad­vis­ers of the flesh and blood va­ri­ety? No, not for quite a while yet. So, what are robo-ad­vis­ers good at? Com­put­ers are good at crunch­ing num­bers, look­ing for pat­terns in big sets of data, un­der­tak­ing repet­i­tive ac­tions ac­cord­ing to pre-de­fined rules, and not let­ting emo­tions drive de­ci­sions. Some of the tasks these pro­grams can do well in­clude cal­cu­lat­ing how much you need to save for re­tire­ment; help­ing to la­bel your tol­er­ance of risk; rec­om­mend­ing in­vest­ment portfolios; and re-bal­anc­ing and oth­er­wise main­tain­ing in­vest­ment portfolios.

De­spite some im­pres­sive gains in ar­ti­fi­cial in­tel­li­gence, hu­man ad­vis­ers win hands down when it comes to hav­ing em­pa­thy; truly un­der­stand­ing your goals and ap­pre­ci­at­ing that they are not just about money; recog­nis­ing there is a place for emo­tion in the financial planning process and craft­ing rec­om­men­da­tions that cater to non-financial needs; and con­struct­ing com­plex strate­gies for clients who do not neatly match one of the cat­e­gories pro­gramed into al­go­rithms.

Each has a place. A robo-ad­viser might be quite ca­pa­ble of help­ing you de­cide which of the 10 dif­fer­ent in­vest­ment op­tions of­fered by your pub­lic su­per­an­nu­a­tion fund is most ap­pro­pri­ate for you; or even de­sign­ing a port­fo­lio for your self-man­aged su­per­an­nu­a­tion fund. How­ever, as they are to­day, robo-ad­vis­ers are not up to fig­ur­ing out whether your life in­sur­ance should be owned by you, your busi­ness or through your SMSF. They don’t know how to cre­ate strate­gies that in­te­grate your su­per fund, fam­ily trust and other financial struc­tures.

Many Aus­tralians are re­luc­tant or un­able to pay for tra­di­tional financial ad­vice, and robo-ad­vice has great po­ten­tial to pro­vide them with use­ful, low-cost in­for­ma­tion.

Even so, when taking this op­tion, it is im­por­tant to un­der­stand the fees charged by a par­tic­u­lar ser­vice, how they are paid and ex­actly what will be de­liv­ered. But when the level of ad­vice re­quired de­vi­ates in any way from the quite lim­ited ca­pa­bil­i­ties of a com­puter, there is sim­ply no sub­sti­tute for an ad­viser with a hu­man brain and a beat­ing heart.

Tech­nol­ogy is im­prov­ing at a breath­tak­ing pace.

Per­haps one day we will sit down to chat with cute lit­tle me­chan­i­cal ad­vis­ers. How­ever, ar­ti­fi­cial in­tel­li­gence has a patchy track record in de­liv­er­ing on its prom­ise, and there’s a fair chance that any­thing ap­proach­ing a com­pre­hen­sive financial plan will con­tinue to rely on the hu­man touch for quite some time yet.

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