Investments | November 17, 2016

Financial Planning | November 17, 2016

Wealth Management | November 17, 2016

Robo Advisors vs. Financial Advisors: Who’s Minding Your Money?

by  Laurie Wexler Gerber, MBA, Director of Marketing

Robo advisors vs. financial advisors (the living, breathing kind): it’s a comparison that has captured a lot of attention in recent months. And although the question of trusting one’s portfolio to an online tool may seem like a non-issue for seasoned investors, a lot of younger families are eager to explore the lower-cost option.

In fact, industry experts estimate that assets in automated portfolios grew by 210 percent from 2014 to 2015 [i]. Others predict that online advisors will manage as much as $2.2 trillion by 2020. Will your children’s assets be represented in that figure?

I sat down with GW & Wade Counselor Barry J. Morgan (BJM) and Vice President of Client Development Jim Da Silva (JD), to examine the robo advisor trend. Here’s what I learned:

LWG: For the uninitiated, how would you explain online advisors, a.k.a. robo advisors?

JD: Robo advisors provide a platform for investors who may be entering the investment space for the first time or for others who may have had mediocre results with professionally managed assets, and are trying a new alternative.  Robos certainly have a place in the market—serving some families and individuals who are starting to grow their wealth to a level which affords them the ability to contribute investment dollars to other vehicles, above and beyond the traditional and limited employer sponsored retirement plans. But as clients mature along the arc of personal finance, they tend to outgrow what the online advisors can provide. By no fault of their own, robos are not designed to replace comprehensive advice. 

LWG: Why do you think robo advisors are becoming so popular?

BJM: I think it’s partly driven by fee sensitivity. Transparent pricing is becoming more important in all sectors; consumers are more aware of what they’re paying for things.

The other point is, because we haven’t had a significant market correction since 2008, some people have been relatively successful investing on their own. There hasn’t been much opportunity for folks who actively select and manage to outperform the algorithms. There’s also a general consensus that the current, ongoing rise isn’t necessarily associated with the best quality stocks; it’s sort of the “rising tide lifts all boats” philosophy. There’s been a lot of momentum without any good rationale. 

LWG: What’s the draw for younger investors, in particular?

JD: Younger investors are accustomed to finding information independently, online. I think there’s also a subset of people who worry about being “sold” on financial services or products they don’t need. Much in the like of a TrueCar for auto purchases or TurboTax for DIY tax preparation, there’s a comfort factor in avoiding that in-person conversation with a real, live expert. There’s also a growing consensus that DIY is fine if given the time and tools.  In reality, there’s also a significant downside, of course…

BJM: Millennials are definitely using online advisors more. The tech community is very big into robos, too. And it’s no wonder. If you put your money in the S&P 500 over the past seven years, you’ve probably done well. All you know is an up market. Unfortunately it may take pain for younger people to realize the value that a full-service financial advisory firm injects.

LWG: Tell me more about that value. What are the clients of robo advisors vs. true financial advisors missing?

BJM: I think they’re losing out in two main areas. First, with respect to market participation. Part of the value a firm like GW & Wade provides is the ability to curb emotions and keep people invested. When market volatility happens, an algorithm can’t talk you off the ledge. It also can’t explain why now may be a good time to double down or trim your game into bonds. Investing is psychological and emotional. Unless you’re incredibly savvy or able to look at money unemotionally, you need asset management that works with you on a human level, not a strictly math-based one.   

JD: What’s interesting about these algorithms is that they can trade intraday, whereas mutual funds settle at end of day. At a time of market pullback for example, there is potential for more and more investors starting to sell out of a falling security. And so the price continues to drop with less demand and more panic for selling it. Without guidance from an advisor, a DIYer could lose value on their investment as a result of others— letting their emotions steer their investment thesis.

BJM: Second, I would emphasize how broadly we’re working beyond asset management. We make sure clients financial lives are completely aligned. We look at risk tolerance and timelines. (As a side note, only 53 percent of robo advisors include a complete check on investors’ attitudes toward risk [i].) We’re always out in front of all money-related needs and concerns. And because we’re fiduciaries, we’re managing clients’ wealth in the most objective way possible. 

JD: That’s right. We speak in terms of risk, not solely return, with respect to investment management.  We also make sure our clients’ tax efficiency is optimized.  For example, if we added the tax savings identified in any given year to a client’s account, and let that number compound year after year, there may be a tax alpha, equally important and complementary to one’s annual return. 

LWG: What are some examples that illustrate GW & Wade’s holistic wealth management approach? What makes it unique?

BJM: Our holistic approach to wealth management helps clients connect all aspects of their financial lives. Our team ensures coordinated tax planning, retirement planning, and estate planning. We weigh in on 401k planning, employee benefits—especially for executives with complex plans involving equity compensation and deferred compensation. We ensure that assets are titled properly, so estate plans

work as intended. We’re also looking at clients’ insurance needs: life, disability, property and casualty, umbrella (we don’t sell any of these products, but we can advise as to when clients are being over or undersold). We look at clients’ debt, addressing their mortgage and refinancing options, if applicable.

The list goes on and on. You don’t get this kind of support from a robo or from the average wirehouse, for that matter.

JD: We never operated under the mandate of client minimums.  What that does is allow clients to come to us when they truly need the advice.  More often than not they are creating their own wealth, are outgrowing their own financial acumen, and need counsel.  Barry touched on a few common inflection points.  When you help clients across that arc of finance—whether it’s getting estate documents in order upon the birth of a new child, helping a client think broadly about their balance of wealth tied to public company stock, etc.—you end up doing so while they are building their wealth.  And you are helping when they need the help, most likely at a point where their assets do not meet the required minimums of more traditional firms. 

LWG: What would you say to someone who is using a robo advisor currently, and perhaps beginning to realize they need more? 

BJM: I would say to come in and sit down with us. We can work with them directly, as their family’s personal CFO, to optimize all aspects of their household finances—starting with proactive tax planning before the year ends

free tax planning consultation

The information provided above is general in nature and is not intended to represent specific investment or professional advice.  Any results cited do not necessarily represent the experience of other GW & Wade clients.  No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from GW & Wade, LLC, which can only be provided through a formal advisory relationship.  

Clients of the firm who have specific questions should contact their GW & Wade Counselor. All other inquiries, including a potential advisory relationship with GW & Wade, should be directed to:

Laurie W. Gerber, Client Development

GW & Wade, LLC







Investments Financial Planning Wealth Management

Laurie Wexler Gerber, MBA

Director of Marketing


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