Robo-Advisors: Not For Everybody

By: Jan Paul C. Ferrer

 

Automated, online investment management services offer a low-fee alternative to those with limited assets and basic investing needs. But for investors with more than $100,000 to invest, the holistic, hands-on approach of a traditional Financial Advisor may make more sense.

There is a new breed of financial advisor getting a lot of attention: so-called robo-advisors. But, think again, if you have visions of the Star Wars character C3PO in a suit. Robo-advisors are simply companies that offer automated, online investment management services, such as asset allocation, fund selection, rebalancing and tax-loss harvesting. Using computer algorithms based on answers to online questionnaires, robo-advisors are able to automate these services while charging lower fees.

Before you abandon your flesh-and-blood financial advisor, however, you should first consider what a robo-advisor does – and does not – provide. Online Financial Advisors base their investment recommendations on answers to questionnaires, bucketing clients into preset portfolios, based on those answers. These surveys are generally short and do not take into consideration multiple goals or unique or complex situations.

For example: Are there certain types of investments you wish to emphasize or avoid? Is tax minimization being taken into account? What about your children’s upcoming education expenses or your aging parent’s financial needs? None of these questions are likely to be addressed by a roboadvisor.

Automated advisory services are also confined to investment management. They do not address estate planning, most tax issues, insurance, home finance, debt management or other aspects of a comprehensive financial plan.

In short, robo-advisors cannot provide the holistic approach that a live Financial Advisor offers. This perspective is particularly important if you have a large portfolio or have sophisticated investment needs. Investors with more than $100,000, or with multiple investing goals, may want to work with a live Financial Advisor, who can help design a comprehensive plan.

A full-service financial services firm advisor may be a better choice if: • You are investing more than $100,000, or more than 25% of your investible assets

• You prefer active portfolio management • You seek professional direction when markets are turbulent

• You have multiple financial goals

• You have financial needs beyond investing

• You have a complex financial situation that requires personal attention

• You seek a holistic approach to planning and managing your finances

Like most things in life, managing your money is not simple, especially as you mature and your assets grow. Beware of seemingly easy solutions to complex issues, and turn to a real professional for guidance.

If you’d like to learn more, please contact Jan Paul C. Ferrer.

Article by Wealth Management Systems Inc. and provided courtesy of Morgan Stanley Financial Advisor.

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

Morgan Stanley Financial Advisor(s) engaged Via Times to feature this article.

[Jan Paul Ferrer may only transact business in states where he is registered or excluded or exempted from registration [http://www.morganstanleyfa.com /ferrer. Transacting business, follow- up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Jan Paul Ferrer is not registered or excluded or exempt from registration.

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