The fastest growing segment of the wealth management industry is now digital and is referred to as “robo-advisory services”. The assets under management (AUM) of this segment are expected to grow by 2 500% by 2020 to reach a potential market value of US$489 billion” (Deloitte Insights, June 2016). Estimates are ‘robos’ will deal with 20% of the market.

The robos versus humans debate

  • While humans have biases and can make mistakes, don’t robos have their own biases built in in terms of the baseline figures used for calculations and design of advice?
  • While costs are cheaper without a wealth manager (typically just 1% on the funds under advice), what is the cost of not getting professional advice?
  • Robo investments are cheaper as they are generally ETFs; however, many wealth managers have reduced costs significantly by combining passive strategies with an active overlay on the asset selection and allocation, combining the best of both.
  • While robo platforms in certain instances can be viewed as more convenient and flexible in that you can ‘do it yourself’ while ‘on the go’, are you not foregoing invaluable advice by eliminating a financial advisor from this process?
  • While robos are viewed as independent, most will direct investors to in-house or brand partner solutions.

Ask yourself

  • Does the technology really engage and understand your needs and goals?
  • What about the nuances and complexities of retirement, estate and trust planning that go beyond a simple zero-sum formula?
  • Are the necessary regulatory, tax and insurance matters considered, particularly those anticipated changes that loom on the horizon?
  • What about coaching against one’s own biases, particularly when markets are volatile?
  • What about looking ahead and putting steps in place to plan for those next stages in life, today: starting a business, getting married and having a family, etc?
  • Have you considered and planned for your needs in the short, medium and long term?

Do not consider your investments in an isolated framework – they are key to supporting you in various stages of life. This is where the expertise of an advisor is key.

Where are you in the wealth management cycle?

  • Am I starting out and looking for a simple recurring investment or are my affairs more complex?
  • Can I identify my wealth-destroying behaviours and do I have sufficient discipline to control them?
  • Do I understand the complexities of a broader plan, including tax, estate planning and insurance?
  • Do I have time to follow new developments as legislation changes and solutions and product offerings change in response?
  • Do I have time to implement the necessary changes and updates as my life changes?

Author: Mike Lledo CA(SA) is Executive Partner at Citadel Wealth Management