One of the more disruptive technologies in the financial services industry at the moment is what is known as "roboadvice". Services such as Betterment and Wealthfront in the US are at the vanguard of these services.
In simple terms, a roboadviser is computer software (invariably online) that will ask you a number of questions relating to your circumstances, needs, and objectives, and recommend an investment portfolio for you. Typically these portfolios will involve a combination of low-fee investment funds.
Roboadvice doesn't refer to comprehensive financial advice. It relates to narrowly-scoped financial advice.
I think roboadvice is a great service, and potentially disruptive to advisers who think of themselves as investment managers or stock pickers. Roboadvice services are typically very cheap, relative to, say, someone who provides the same service at many times the cost.
Roboadvisers will not make financial advisers redundant, however.
This is because the value a good financial adviser provides doesn't relate to stock picking. This is one of the easiest parts of what they do.
It's so simple that I'm seriously considering making my "preferred products" and "model portfolios" online and freely available. Sure, there is some upfront research involved. But after spending that time, there's little additional marginal cost to an adviser for sharing this information.
The real value that a good financial adviser provides doesn't relate to the investments they recommend. The real value is how the recommendations relate to the client.
The real value is getting to know a client, and building a strategy that is tailored to their unique circumstances, needs, and objectives, which change over time.
The real value is helping clients to get clarity about their goals and priorities. This can involve helping to get couples onto the same page - as much as possible.
The real value is helping clients to identify the uncertainties in their lives and develop a strategy for managing risks and gaining exposure to potential upside.
The real value is providing motivation and accountability as clients commit to a process and achieve long-term outcomes, which in many cases is simple but not easy.
And at a technical level, a financial adviser will keep abreast of changes in the market, and how these changes align with clients' ever-changing circumstances, needs, and objectives.
A good financial adviser can't provide certainty, but they can provide clarity, and help build confidence. They can help clients sleep better at night.
I embrace roboadvice. I think roboadvice is great and I have no fear for what it represents.
Roboadice will challenge the value proposition of advisers who think their focus should be on products, not clients. But for those advisers who focus on clients, roboadvice and similar service will showcase the real value that good financial advisers provide.