Do Robo-Advisors Dream of Lifetime Income Goals?

I recently spent an entire morning on what’s called a “radio tour.” Apparently, my publicist thought the best way to spark interest in my new book, Hey! What’s My Number? — How to Increase the Odds You Will Retire In Comfort was to appear nationally on a cold Tuesday morning discussing the relative benefits of robo-advisors vs. human being advisors. 

In essence, this radio tour covered the eastern half of the country, from Illinois to Georgia, from Nebraska to New York, from Texas to Michigan, and several other states in between. What I learned may surprise you — and in a good way.

I was immediately struck by the commonality of all the radio hosts. In many ways, they represented the heartland of America — right down to the same voice. More importantly, save for the one host who moonlights as a financial advisor (or is the radio job the moonlighting one?), each and every one of them admitted to their financial naïveté. It was actually kinda cute.

But here’s the kicker. Not one of them (okay, except for the advisor) claimed to know what a robo-advisor is. Now, if you’re in the business, you can’t help but be swimming in dozens of articles proclaiming robo-advisors as the next big thing. “This is the end of the profession!” cries one industry guru. “Why will clients pay advisers when they can get advice for (almost) free from robo-advisors?” shouts another. It’s all doom and gloom, fear and loathing … cats and dogs, living together!

Despair not, fellow traveler, for the rumors of the death of our industry have been greatly exaggerated. Why? Because every host, no matter what their state, background or political persuasion, all responded with the same incredulous gasp when I described what a robo-advisor does. “What?!” they mocked, “You think I’m going to trust a computer with my lifetime savings?” 

Now, I know this is an unscientific survey, but I’m willing to bet that the thinking of these radio hosts mirrors the thinking of their listeners — or would if presented with the choice. Even these non-expert radio hosts realized there’s a difference between automating McDonalds' attendants through the use of kiosks and creating an artificially intelligent android (i.e., what’s required to duplicate the nuanced and intuitive analysis only human advisors can currently offer). 

I suspect robo-advisors are destined to share the same virtual shelf space as WebMD, LegalZoom and all the other intellectual service provider replacement wannabes. They will find their place, but only within a very narrow domain.

Doubt my sage prognostication? Little wonder, since you’ve almost certainly read all the trade press articles about the growth in both the offerings of and the new business for robo-advisors. Heck, you’re probably even considered getting one for your own firm. But let me remind you of this: In rising markets, even your barber gives great advice. Let’s see if robo-advisors survive the next sustained market downturn.

How can I be so confident of my prediction? A long time ago, in a market cycle far, far, away, I worked on the front line of the original “robo-advisor” wave during the 1980s. Remember that? Black boxes, thanks in part to the success of Batterymarch, captivated the wizards of Wall Street. Every RIA wanted one, and I was tasked to develop one for my firm. I went all out, and was in the process of testing the database link to the knowledge engine when the 1987 crash occurred. Overnight, the shortcomings of black boxes in general became apparent. My yet-to-be-tested project, like many similar projects across the industry, was scuttled.

What’s so different this time?