by Ron Surz
No matter how you define technology-based Robo advisors, Humans are involved throughout. Humans developed the programs that invest client assets. And, no matter how you define Human financial advisors, computer applications are a major part of their investor services. Even a 100% computerized Robo offering is based on models developed and maintained by Humans. And Human advisors use computer programs to do their analytical work, like capital market simulations and manager screening. So the distinction between Robo and Human is a matter of perceptions and degree, as shown in the following graph. You can assign alternate names in the graph if you’d like, but we use “Android” to describe a Robo with a human face, who is willing to communicate with clients over the telephone and Internet. Similarly, Cyborgs are humans who have integrated computer technology into their advisory practice. However, unlike Robos, they do permit communication with investment professionals. As a practical matter, no one is 100% computer or 100% human.
Someone has to think
Computers don’t think. Unless the financial advisor is given full discretion, the sole and final decision maker is the Human client. Human clients have to decide, it is their money. Why does this matter? Because the client gets to choose the type of advice, where “Computer” is everything quantitative (left brain) and “Human” is everything else (right brain). Specifically, the client can choose to use multiple advisors, say human for planning and other cerebral services, and robo advisors for more canned, repetitive services.
But most investors probably will not use multiple advisors, at least not now. What is more likely is some integration, or movement toward the middle. For example, you can argue that computers will never replace doctors, but there are some things that doctors can’t do, and that computers can do better, for example laser eye surgery. It may be that a new type of consultant emerges to manage the robos, dolling out assignments to the best in each discipline. Time will tell.
Better living through science
We are all benefitting from an incredible technological revolution that just keeps getting better, so it’s no surprise that technology can help us make better investment decisions. Computer technology processes data much faster and more efficiently than the Human mind, but it cannot convert that information into a decision. Therein lies the separation of duties that makes life easier and more fun. May all of your decisions be brilliant.
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