• August 2014

What Do Robo-Advisors Mean for the Future of Wealth Management?

By Rita Cheng, CRPC®, CFP®
Co-Founder and CEO,
Blue Ocean Global Wealth

“Electric communication will never be a substitute for the face of someone who with their soul encourages another person to be brave and true,” said Charles Dickens.

That concept has never been more relevant than it is today in the financial advisory profession, which is experiencing a dramatic transformation.

The most significant change is the emergence of robo-advisors, which deliver portfolio management services online with minimal human interaction.

What they are:

  • Robo-advisors usually only offer portfolio management services—such as determining how to allocate investments among various types of investments.
  • Robo-advisors leverage the same technology solutions to manage client portfolios that the more established firms typically use.
  • Robo-advisors allow investors to access portfolio management tools similar to how they open self-directed accounts and initiate online trading.
  • Some robo-advisors provide access to select portfolio managers and offer their own proprietary model portfolios based on computer-generated algorithms.
  • Robo-advisors often deliver online financial education services, which help consumers understand the investment management process.
  • Some robo-advisory firms boast that they offer more human interaction and consumer-friendly tools and applications than traditional firms.

What they aren’t:

  • Robo-advisors are not able to work, process information, and communicate across diverse perspectives the way humans can. Instead, robo-advisors are governed by computer algorithms and programming.
  • Consequently, robo-advisors don’t use a coordinated approach to financial planning—one that integrates budgeting, tax, estate, insurance, philanthropy, and investment recommendations.
  • Robo-advisors, like human financial planners, are not all alike. Categorizing all financial advisory firms that deliver a more systematized, automated, and less-expensive client experience as interchangeable can be misleading.

Understanding the landscape:

  • It is important to not to paint all robo-advisors with the same brush.
  • Companies including Learn Vest, Personal Capital, Edelman Online, and Vanguard have CFP® professionals available to provide advice that extends beyond portfolio management or investment management.
  • Robo-advisors such as JemStep and Financial Guard provide buy and sell recommendations without addressing cash-flow management or debt management.

What does the future look like for financial advising?

Managing a successful financial advisory firm in the future will necessitate consistent integration and implementation of technology. The theory of disruptive innovation, as described by Clayton M. Christensen in his book, “The Innovator’s Dilemma,” holds that companies can grow by developing products and services that meet the needs of new and underserved markets.

This notion of disruptive technology allows new arrivals to the wealth management space to develop more customized digital content and tools.

One of these new arrivals, robo-advisors, are geared toward tech-savvy members of GenX and GenY who embrace technology and prefer collaborating with their financial advisor rather than delegating all of their financial affairs.

What factors should you consider to determine if a robo-advisor is right for you?

Despite the democratization of investment management advice, no service can replace a financial advisor who listens to you, delivers customized objective advice, and helps you make smarter financial decisions.

Robo-advisors simply offer investment management—not comprehensive financial planning. Indeed, investment management in isolation does not constitute financial planning. And they don’t offer personal, customer service.

Can you find a robo-advisor that has the capacity to call your accountant in December to discuss harvesting tax losses or implementing a cash-balance retirement plan?

Finally, the robo-advisors that exclusively focus on portfolio management may overlook risk management and insurance planning. Robo-advisors are not equipped to console family after the loss of loved one, come to your home, help complete estate settlement paperwork, or provide peace of mind.

The Bottom Line

Regardless of where they fall along the wealth spectrum or what changes in life they experience, all clients can benefit from:

  • Partnering with a qualified financial planner who can develop a written financial plan and provide integrated financial advice in terms of investments, taxes, risk-management, estate planning, and charitable giving
  • Recognizing that most wealth management and financial planning companies are leveraging technology in an attempt to streamline processes and improve the client experience
  • Avoiding impulsively embracing the new trend of robo-advisors, since the quality of advice, investment products offered, and service models vary significantly—just as they do with traditional wealth-management firms.

I know I’m not alone in valuing high-touch, low-stress customer service. At Blue Ocean Global Wealth, we pride ourselves on talking to our clients about their fears and concerns, hopes and dreams. In turn, we are able to deliver something that all clients truly value … clarity, control, and confidence.

For more information, visit www.blueoceanglobalwealth.com.


Marguerita M. Cheng, CFP® is the CEO of Blue Ocean Global Wealth, which provides corporations and institutions with portfolio construction, investment due diligence, and risk-management consulting services. The firm works with families, entrepreneurs, and executives to help them identify and achieve their financial goals. As a CFP Board Ambassador, she helps educate the public, policy makers, and media about the benefits of competent, ethical financial planning.

A Financial Planning Association (FPA) national board member and member of the Finance Committee, Cheng served eight years on the board of directors of her alma matter, The Robert H. Smith School of Business at University of Maryland, where she collaborated to increase alumni engagement and developed asset-management education programs. She is also the president of the Blue Ocean Economic Empowerment Fund.

Cheng says her greatest joy and passion is touching the lives of others so that they may achieve their personal financial success.

Securities offered through Private Client Services, LLC. Member FINRA | SIPC. Advisory products and services offered through Blue Ocean Global Wealth, a registered investment advisor. Private Client Services, LLC and Blue Ocean Global Wealth are not affiliated entities.

Blue Ocean Global Wealth intends that this article will be viewed for informational purposes only. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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