Rise of the Robo-Advisor Machines: Are They Really Advisors?

In the 2004 movie ‘I, Robot’ (which is based on a collection of science fiction stories by Issac Asimov that were compiled into a classic book of the same name in 1950), Chicago police detective Del Spooner (played by Will Smith) has a deep-seated distrust of robots (which are ubiquitous in the future). The genesis of that mistrust is that, despite his instructions to the contrary, one robot made the choice to save him rather than a little girl from drowning, based on the machine logic that Spooner had the better chance of survival. That distrust (spoiler alert!), combined with the mysterious death of a computer scientist who is a friend of Spooner’s, leads him to uncover a plot by the robots to save humans from ourselves by enslaving us. 

Despite the fact that British physicist Stephen Hawking warned in 2014 that “The development of [computer] artificial intelligence could spell the end of the human race,” few of us feel that the recent emergence of so-called robo-advisors, or digital financial advisory platforms, will be a threat to humanity as a whole.

However, some folks aren’t so sanguine about the robos’ potential effects on the human advisory world; some observers questioning whether tobo platforms can be ‘advisors’ at all. One such pundit is Knut Rostad, founder and president of the Institute for the Fiduciary Standard. Knut put it this way:

“Advisers must be adamant and insist that ‘advice,’ as opposed to a product recommendation, entails professionalism, judgment, and empathy, among other human skills. To suggest an algorithm output is ‘financial advice’ demeans fiduciary advisers.”

And in his February 2017 Investment Advisor cover story, Can a Robot Be a Fiduciary?, Scott MacKillop, CEO of Denver-based First Ascent Asset Management, explores the basis for robo ‘advice’ more deeply:

“Robos collect basic data about the client, such as name, age and address, and then run the client through what is essentially a short risk-tolerance questionnaire. The robos have very little knowledge about —and certainly no understanding of—the needs or interests of the client. It is simply not possible to understand the goals, experiences, preferences, risk profile and other relevant information about a client without talking to them. Anyone who has worked with clients knows this. The answers to a 10- or 15-item questionnaire provided in an online environment cannot even begin to scratch the surface.”

Will there come a time when computers can do all the things that human advisors can do? Maybe, but I doubt it. The financial planning profession was founded on the idea that financial advice needs to be based on considering a client’s entire financial life—including personal finances, risk management, taxes, retirement and estate plan—and then creating a financial and investment plan that meets those needs and goals. And as George Kinder has emphasized in his ‘Life Planning’ movement, there’s a lot of talking and listening involved in discovering what clients really want.

It’s true the computers can be cheaper, faster and more convenient, but that’s not always better. And I think most people know this. Perhaps rather than a threat, maybe the robo platforms have created another major opportunity for real financial advisors: Selling humanity.

That is, taking a page out of Asimov’s book to market themselves as “people who want more than programed recommendations from a machine…”

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