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Today we have another listener question that came to us via email. Pastor Doug in Pennsylvania had a very good question: Will robo-advisors replace financial advisors?

This is a great question, so let’s get right to it.

 

What is a Robo-Advisor and its History?

Robo-advising refers to online financial planning and investment services that use algorithms to create automated portfolios. They originated in the late 2000s after the financial crisis that led to the Great Recession. Their goal was to provide investors with low-cost alternatives to invest their money, utilizing the infancy of artificial intelligence (AI) and machine learning.

Around 5-10 years ago, robo-advising was a hot topic in the financial management world. During that time, there was fear in the financial industry that robo-advising would replace local financial advisors. However, time has shown that this is simply not the case.

What Should We Think About Robo-Advisors in the Era of Artificial Intelligence?

AI and robo-advisors are becoming more fully integrated and are likely to be used by human financial advisors as part of their asset management services. The reason robo-advisors never fully replaced financial advisors is that, when it comes to our money, humans want to know and be known.

A computer cannot fully understand what it’s like to be human. There is something inherent in the heart of man (specifically, the image of God and emotions) that computers can never replicate.

Robo-advising is neither good nor bad; it’s a tool that can be used effectively to allow human advisors to spend more time on the most important part of the advising process—walking with clients through the ups and downs of life and reassuring them when markets are down. I don’t think a computer algorithm can adequately calm an anxious heart. However, a Christian advisor working with a believer can offer the truth of the Word of God and the assurance of God’s promises to calm fears during personal or financial crises. This is our calling at the Life Financial Group. While we don’t currently use robo-advisors as part of our practice, I wouldn’t be surprised if we started using them more in the future as these tools become more readily available.

Will Robo-Advisors Ever Replace Financial Advisors?

Robo-advisors will not replace the need for a financial planner who provides holistic planning, offering more than just asset management. They may replace those who focus solely on asset management and portfolio structuring, as these are tasks that computers can handle. However, a computer cannot fully understand what it means to be human.

I believe that in the future, financial advisors will become even better asset managers because of robo-advisors and artificial intelligence, allowing them to be more effective in addressing the unique concerns and challenges faced by individual investors. Rather than an “either/or” scenario, it will likely be a combination of both financial advisors and AI systems working together to develop the best financial plan for the client.

It’s important to note that while robo-investing and AI can be disruptive to the financial planning field, it’s not the end of the world for the financial advisor industry as a whole. In fact, AI and robo-investing may spark the next big evolution in the wealth management industry.

The Problems with Robo-Advisors

One of the problems with robo-advising in the Christian context is that it prioritizes maximizing returns and risk mitigation above all else. Robo-advisors do not know how to make value judgments about what to invest in. Because of this, portfolios may be created that do not align with one’s values or contribute to making the world a better place.

Another significant issue with robo-advisors is that if all computers operate on the same algorithm, the markets could experience much greater swings, both up and down. This, in turn, could create opportunities for cybercriminals to manipulate the algorithm to steal and destroy wealth.

Humans are messy and emotional, which is the problem with algorithms. Algorithms cannot truly automate how to respond to different situations and life crises. Human psychology is unique and varies from person to person, which is why personal financial advisors, in conjunction with AI tools, will be crucial in the future.

Who Are Robo-Advisors Most Suited For?

In today’s investing world, investors who are not primarily concerned with financial planning but simply need to make smart investment decisions may lean toward full robo-advising. Those who fit this category include, but are not limited to:

  • Young investors with minimal assets who want to start investing for the first time
  • Investors who prioritize low-cost, automated portfolio management
  • Those who don’t want advice—they just want their investing done, and done inexpensively.

Advice vs. Asset Management

There is a significant difference between these two terms—Advice and Asset Management—in the financial world. A robo-advisor will simply manage assets and make decisions based on numbers. A human financial advisor, on the other hand, will give you advice based on real-world experience and help you mitigate the two big emotions in financial planning: fear and greed.

Stewardship Application

Financial advisors are not going away anytime soon. As most professions undergo change and transition over the years, so will the financial and wealth management world as AI takes a more prominent place in our everyday lives.

As of today, robo-advising, to our knowledge, is not capable of enabling value-based or faith-based investing. This is a shortfall for now, as many Christians are increasingly leaning toward investing that aligns with their values and faith in God.

Are you considering investing and possibly using a robo-advisor? If so, remember these key things:

PRAY FIRST
Do not be anxious about anything, but in everything, by prayer and petition, with thanksgiving, present your requests to God. (Philippians 4:6, NIV84)
God wants to be involved in your current and future investing! Remember, it is His money you are stewarding.

SEEK COUNSEL
As with other areas of your life, when you choose to invest what the Lord has put into your care, it is imperative to seek wise and godly counsel.
Remember what Proverbs 15:22 says: Plans fail for lack of counsel, but with many advisers, they succeed. (Proverbs 15:22, NIV84)

MAKE WISE CHOICES
Seek the Lord for wisdom! If any of you lacks wisdom, he should ask God, who gives generously to all without finding fault, and it will be given to him. (James 1:5, NIV84)
Remember, YOU are the steward of what God has put into your care—not the robo-advisor or even the financial advisor that you hire! So, what should you do? Seek godly counsel. Seek godly wisdom. Set a plan. And remember Proverbs 16:3, which says: Commit to the LORD whatever you do, and your plans will succeed. (Proverbs 16:3, NIV84)

 

 

 

 

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