Should you trust your investments to a robo-adviser?

I woke up this morning to an interesting article on my iPad Flipboard magazine app.

It came from the BBC News website, explaining how ‘robo-investing’ is managing money for the masses.

This process uses computer algorithms to work out and apply the ‘best’ investment strategy for your portfolio.

It’s a rapidly growing sector, especially in the United States where a number of providers are now promising a cheaper, more efficient service than a traditional investment manager.

So, should you trust your investments to a robo-adviser?

There are a lot of positives that come with this approach; portfolios are typically cheaper when automated, and, from a behavioural finance perspective, emotions like greed and fear are removed from the investing process.

Robo-investing is also likely to appeal to the mass market, especially younger investors in the wealth accumulation phase of their life, where simplicity and low charges are equally as attractive.

That said, there’s a risk that a focus on cost can be detrimental to overall financial success. For any investment service to be sustainable over the long-term, it needs to charge fees at a level where it can be profitable and survive.

Opting for the lowest cost provider of any service or goods can result in getting a worse outcome; it’s so important to focus on value for money, not price.

Trusting your investments to a robo-adviser cuts out one of the most valuable parts of investing – advice.

Working with a financial adviser provides a service which goes far beyond the relatively simplistic act of portfolio construction and monitoring. We take a holistic approach to Financial Planning and wealth management, offering value which a robo-adviser can never match.

Going back to the behavioural finance benefits of robo-advisers, they cannot of course protect you from your own human emotions of greed and fear.

A flesh and bones financial adviser can intervene when these emotions arise and threaten to derail your investment portfolio; having a rational chat with a client who is about to sell their funds because of some short-term volatility is something we human advisers can do that the robots cannot.