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Should you use a Robo Advisor?
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Although computer based investment programs have been around for many years, the term “Robo Advisor” is a relatively new label. I can envision the Terminator placing my call on hold with the message of “I’ll be back.”

Surely these programs are better than the mechanical monsters that many of my insurance carriers offer in these days.

“To speak with someone in another country who you may or may not understand, press 28.”

“To order a pizza while you sit on hold another 30 minutes, press 41.”

Companies offering these type of Robo Advisor programs include familiar names like Vanguard and Charles Schwab along with many that you haven’t heard of. In very simple terms, a Robo Advisor program will manage investment portfolios at a very low cost with savings passed to the investor. Exchange traded funds are used by most companies. Your risk profile is determined and the investment recommendations are then developed usually through Modern Portfolio Theory. (Investopedia’s definition is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk.)

There are some potential drawbacks if you are considering one of these accounts. Usually you cannot customize the program and accounts outside of their fund offerings are not permitted. Most importantly, if there is no cash option in your program a drop in the market could put a dent in your account.

In my opinion these accounts can be very attractive to younger investors, and individuals with small accounts. From a cost standpoint they are a dramatic improvement over firms that offer funds with a front-end sales charge.

There are more than a few areas where I cannot get excited about these Robo Advisor programs. The old adage of “one size fits all” just doesn’t work in retirement planning.

To be more specific, there are two professional degrees that are considered the best to have for Retirement and Financial Planning. The Certified Financial Planner (CFP) and Chartered Financial Consultant (ChFC) are provided by the American College of Bryn Mawr, Pennsylvania. Of the multiple college level courses required for each degree, only one specifically applies to investments. Other required courses include Income Taxation, Retirement Planning, Insurance Planning, Estate Planning and Advanced Case Analysis. They weren’t easy, believe me!

My suspicion is that a Robo Advisor will not be able to advise you on any of your insurance needs, overall tax picture, medical cost exposure in retirement, or how to best utilize Social Security. In addition, I doubt that a Robo Advisor will be able to provide financial counsel if one of your children drops out of college and spends the next six years playing Game Boy and hanging out with his buds!

Trust is a key element in a relationship with a professional advisor and I see no way that can be duplicated by a machine, at least not in my lifetime.

Mike Lassiter is a Chartered Life Underwriter and Chartered Financial Consultant. He is a Licensed Insurance Counselor and a Registered Investment Advisor. He can be reached locally at 770-786-2781.