Robo-advisors can't help you navigate your life, but people can

Lance Solms, Head of Itransact.

The financial services industry has been buzzing about the emergence of Robo-advisors for the past few years. These online tools attempt to create and manage a client’s portfolio in a fast and inexpensive way.

“One of the big appeals of Robo-advising for clients is the straightforward and transparent pricing structures that are shown on many of the websites. For millennials, they may be enticed because the fee structure may be more realistic for a group without many assets. For sceptical Gen Xers, the fee transparency that is offered by Robo-advisors may be attractive,” says Lance Solms, Head of Itransact.

Although there are a few obvious perks to the Robo-advisor model, there are undeniable advantages that human financial advisors bring to their clients. Tech-savvy millennials may feel comfortable using an online tool to manage their money; however, there are certain millennial attributes that make them ripe for a face-to-face financial advisor.

Gen Xers have an independent spirit and may have the confidence to use online financial tools, but they are in the thick of making very critical financial decisions. A true partner will be more helpful to them than an online tool as they manage the financial implications of their next stage of life.

Explaining the benefits of a financial advisor to a Millennial:

Robo-advisors won't teach you the basics

“In order for younger generation to invest in an independent format, they would first need to feel comfortable being in the driver’s seat of their finances. Study after study has shown that financial literacy is greatly lacking among the millennial generation,” adds Solms. Some of the financial jargon used on Robo-advising websites may be enough to scare a millennial off right away. In addition, many millennials are accustomed to mentor relationships; from close relationships to parents, teachers and coaches, many millennials expect to have some type of guidance from someone they trust.

Financial advisors customise the approach

Millennials grew up during a time of hyper-customisation. Everything from their shoes to their yogurt toppings can be specialised just for them. Many millennials have the same expectations with personal services. This is a place where human financial advisors shine. No one can create a more customised experience than another person. By taking the time to get to know your millennial client, you can customise the tools you use to communicate, the investment strategies you offer, and the advice you bring. An online option cannot offer the same kind of customisation. One thing to note is that millennials don't respond to saving for retirement as we know it. They may live to over 120 so may need to think about going back to university at age 60 to study further for a second career.

Explaining the benefits of a financial advisor to a Gen Xer:

Financial advisors can save you time

Gen Xers are in a hectic life stage. They are climbing the corporate ladder or setting out on an entrepreneurial course as they enter their prime earning years. “In this case Robo-advising may save them some money, but it requires time they do not have. On top of everything else these Gen Xers have on their plates, taking on the responsibility of managing their own finances just may not be realistic,” says Solms. Talk to them about how you can save them time. With you, as the advisor taking the reins on investing, they can spend more time doing the things they love.

Robo-advisors can't offer life guidance

Many Gen Xers are the parents of teenage children. They are dealing with complex financial questions surrounding paying down their mortgage, saving for college and, if there’s money left over, planning for retirement. Gen Xers don’t just need a financial tool, they need a human to ask the tough questions, understand their goals and come up with creative financial solutions. Solms adds: “Robo-advising tools can’t ask critical life and financial questions such as: What kind of schools do you want your kids to attend? What would happen you were to become disabled? What do you want your legacy to be? These are the personal, intimate conversations that good advisors can lead clients through. Although these deep conversations aren’t the easiest, they can provide peace of mind to clients if they know that the big topics are covered.”

“Although Gen Xers and millennials may have the ability to apply online tools to manage their money, an in-person financial advisor can add so much more. Focus on financial education, customisation and personal conversations about long-term goals to help millennials and Gen Xers understand the clear advantages of financial advisors,” concludes Solms.