Hardware and Software versus LiveWare

Lou Amazora writing at WealthProfessional offered this question recently.  Is financial planning being sold short?

If we listen to newspaper columnists, regulators, some clients and our government folks, the implicit answer would seem to be, “It has little value, so why should people be paid to do it?”  For many people it has no  perceptiblevalue.  That is the fault of the advisors not of the clients.  If advisors sell a collection of products and produce 50-page reports that no one reads, then the plan will have no value. People don’t need to know much about financial planning,  but they do need to know what its objectives are and how itimplements.

Earlier this year I wrote an article that addresses some of the issues.  What Is Financial Planning For? Explain In Detail.  It offers a definition and asks some questions that clients ask or should ask.

Lou Amazaro’s piece adds more information still.

Did you know that people who use advisors, even though they pay fees, accumulate more assets than those who do not.  How is that possible?  Well, let’s look.

Advisors do not manage money, that is what investment managers do.  Advisors do manage clients.  There are several parts:

  1. Help establish reasonable performance goals.
  2. Help manage emotions when things are going badly or, oddly, when things are going too well.
  3. Help clients identify all of the aspects of their plan rather than the few they already know about.  Try a do-it-yourself tax plan.
  4. Help clients identify contradictions.
  5. Be the conscience.  Pointed questions about why they want to withdraw the education fund to buy a bass boat likely will result in the money remaining in the investments.
  6. Be the connector to specialized services.  Tax planning, estate planning, legal matters,  insurance advisor, pension advisor, debt management, succession plans and more are available in the market.  Which client knows who is good and how do they tell?
  7. Be an informed sounding board.  Most clients know the answers in a general way.  They appreciate some specifics and encouragement.

Suppose I have a robo-advisor instead.  How many of the factors above will be well executed.  Answer – None.  Why?  Because robots are robots and most financial planning problems arise from things that are not transactional.  People things.  Emotional things.  Things that are vaguely understood.  Things that one must negotiate.  Things where there are two similar options and more analysis won’t help.  Robots don’t say, “Pick one and get on to important things.”

Robot algorithms deal with a few issues, and most relate to efficiency.  Diversify the portfolio.  Rebalance.  Report for taxes.  Report financial performance.

Personal advisors, “LiveWare,” should be efficient too but they should direct their attention more to being effective.  About getting what the client needs and wants.  Robots deal poorly with ambiguity and all people are ambiguous.  Don’t expect a good mesh.

If you get what you want, do you really care how you did it?

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

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