Does Online Financial Planning Really Work? The Dawn of the Robo-Advisor

The Evolution of Online Portfolio Management

First came the online brokers. You could trade to your heart’s content, with no financial planner or investment advisor questioning your dreams of getting rich quick.

Just a few mouse clicks and you owned some piece of a dotcom, even though you had no idea what it did, manufactured, or sold.

But the dotcoms that enabled aspiring investors to act on a whim with their hard-earned money seemed to crash and burn, leaving behind damaged portfolios and a general recognition that building wealth and saving for was not entirely a do-it-yourself activity.

Despite the many disasters wrought by the ease of online trading, it did not end the search for online approaches to building a portfolio.

Many people still seek the ease of handling matters online, but know that making investment choices requires a better methodology than becoming an amateur while-at-work day trader.

Robo-Advisors with Real Answers

In an attempt to answer these needs, robo-advisors have sprung up across the internet. These are websites that use software algorithms (complex mathematical formulas) to determine your investor profile.

You feed the program information about yourself and it decides the kind of investor you are, what your risk tolerance is, and what your investment objectives and goals are.

Some robo-advisors only give you an investment plan, while others actually do the investing for you. Some go so far as to monitor your daily spending with access to your bank accounts and credit card statements.

Many of these sites go beyond simple online questionnaires and web page responses. Although business is conducted online, there are often real people on the other side of the ethernet that will communicate directly with you, to be your personal advisor via phone, email, and even video chat. You can be a true client without ever having to go to the office.

The Convenience

The convenience is apparent, and for those who have come to trust the internet to conduct their financial business, it gives the uninitiated saver one less excuse to put off saving and investing, while still maintaining a more strategic approach than day trading online during work hours.

The fees are quite transparent, usually either a monthly fee with an initiation charge or a quarterly fee based on the value of the portfolio being managed.

Many robo-advisors do not have minimum portfolio balances, and if they do, the minimums are often quite low. Whereas, some brick and mortar financial planners won’t take on new clients unless their account has a half million dollar balance or more.

The Algorithm

The success of this new innovation in personal money management is dependent on the depth of the questions, the accuracy and completeness of the information provided, how well the algorithm analyzes the data, the detail of the options provided to the user, and the successful implementation of those solutions.

When you are young and just starting to build a portfolio there are usually fewer complications, leaving less to go wrong with canned responses from a computer. But things can get much more complicated later in life when you have a family, a mortgage, and a looming retirement date.

A client may have a sizeable portfolio but no income other than Social Security. What planning maneuvers should be considered to make sure they don’t run out of money?

There may also be estate planning needs that involve more than just trying to avoid estate taxes. In instances like these, can the robo-advisor really deliver the goods?

The Brick and Mortar Office

This is not to say that a financial planner in a traditional office will always deliver a better product. Just like any profession, there are varying levels of competence among those working in finance.

There are many financial planners who use the internet and technology to better help their clients. If your planner lives in New York and you are retired in sunny Florida, your planner can communicate with you easily and send you all the information you need to enjoy your retirement via the internet.

In this case a brick and mortar office isn’t necessary, but the relationship with a real live advisor who has your best interests at heart can make your life a lot easier.

So can robo-advisors really to meet our financial planning needs? Only time will tell. In the meantime, we recommend speaking with a real life certified financial advisor.

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At Medallion Financial Group, we believe financial planning is about Family. We have been helping families invest in the future since 1987 through a holistic planning approach. We recognize there are a variety of needs when it comes to retirement planning, plan rollovers, annuities, college planning, life insurance options, and investment management. It is easy to get lost in a sea of choices. Our financial advisors help with the basics and beyond to enable our clients to get the education, advice and management they need to retire with confidence.

Our focus is twofold: first and foremost, we are fiduciary advisors. We stand against any violation of laws, values, and ethics. Second, we treat our clients as part of our family, not only those who call Maryland and Georgia home, but clients across the US who have benefited from our reputation of personal service, integrity, and expertise.

We strive to exceed client’s expectations – because we have high expectations of ourselves.