Robo-advisors are not voiceless if their actions speak louder than words
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Are the automated investment advisors on their heels? Wealthfront CEO Adam Nash has been out in front of the recent market correction, highlighting the value of his firm’s approach while putting the downswing in context. The heads of other automated advisory firms are weighing in as well. Perhaps more important than what these leaders are saying, however, is the fact they are speaking at all. One might say that these firm honchos must speak up, since their robot-advisors (or more precisely, their algorithms) can’t talk to clients themselves. That was a point made by Investment News and other media outlets describing investors’ jitters at the market upheavals. Fair enough. But to say that client communication is the Achilles heel of the automated investment advisor misses the point, in my view. Indeed, it speaks to a advisory business model that is about to go the way of the Minotaur. Here's why:
- The savvy market participant takes the long term view. Remember, 84-year old Warren Buffett is putting money into investments that (for actuarial reasons) he’ll never see again. Clients need to ask themselves if they are investors or traders.
- Do clients who are investors need the counsel of salesmen, which many advisors still are? Too many advisors simply respond to market developments and lack an actionable take on the future. Where’s the value in that?
- In most cases, the advisor will counsel patience in the face of the storm, which does indeed make sense. But is that counsel really worth a 1% annual fee, given point #2 above?