All robo, no advice

Robo-advisers are here to stay but it's valid to criticize their limited planning options.

Ryan Neal’s recent article calls out the knee-jerk reactions of robo detractors. As a reporter and fintech observer, he’s heard more than his share from advisers who, let’s be honest, were worried they would be automated out of existence.

For better or worse, the machine uprising never took place. Failing to achieve critical market share, robos nevertheless have changed the conversation in financial services. Mr. Neal is right: Robos aren’t a fad, and they’re not an existential threat to human advisers.

But there’s one thing the detractors have right: Robos can’t offer financial planning, full stop.

Mr. Neal contends that robo-recommended portfolios are “a massive improvement over do-it-yourself investing.” And that’s true, in the same sense that a PB&J sandwich has a lot more nutritional value than a Tide pod. Conventional wisdom says robos are a lifeline to the households that old-school advisers wouldn’t touch, because of their lack of profitability. But DIY versus robos is a false choice.

Here’s why: For close to a decade, robos have iterated on investment products and asset management, but haven’t figured out how to deliver real planning. DIY versus robos isn’t a choice between no planning and cheap planning, because neither option delivers planning. Robos broadened access to investment management, but they only solve a small fraction of the problem that most mass affluent households face.

Why do people look for help with their money? Your prospects don’t come to you saying, “I need help building and rebalancing my portfolio.” People need our help when they start families, and suddenly they need to think about their jobs, a bigger house, new cars or retirement. They want to know how to handle career changes. Or a divorce. They don’t just want to know if they have enough money to retire, they want to know how to do it and what a realistic retirement even looks like for them.

We’re not talking about hypotheticals. Our experience at Facet Wealth comes from our average client, a mass affluent person in their 50s. In other words, a high-complexity, low-margin nightmare for the old-school business model of wealth management.

Could robos help these folks manage assets on the cheap? Yes, but that’s not the problem clients need us to solve. They need affordable, high-touch service that connects to the emotional throughline of a household’s financial life management needs. Investment management algorithms don’t get us there.

Mr. Neal is absolutely right. It’s past time the financial services industry gives robos their due. They’re here to stay.

But it’s just as important to be frank about their limitations while focusing on innovation that can drive access to holistic planning and not just asset management.

(More: Rolling out robo-advisers has been challenging for early adopters)

Anders Jones is CEO of Facet Wealth. Follow him at @AndersJones.