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The rise of robo-advisors in wealth preservation

Proactive wealth management is an important step in securing not only your future, but also the inheritances you leave behind for your loved ones. Selection of a financial advisor is an important choice and creates a bond of trust that a skilled professional will be looking out for your best interests.

For first-time investors with limited resources, wealth preservation may start with more affordable options to minimize associated fees. In today’s world of sophisticated technology, automation is an attractive alternative.

Digital investment services, more commonly known as robo-advisors, are computer-based asset management programs. Using programmed algorithms, these virtual money managers generate asset allocation recommendations for their flesh-and-blood clientele.

According to Aite Group, robo advisors were managing $53 billion dollars at the end of 2015. BI Intelligence forecasts that these investment cyber-gurus will have $7 trillion under management by 2020.

Robo advisors were created for everyday investors who cannot meet the minimum account requirements that usually come with traditional investment advisors. Robo-advisors usually charge fraction of the fees their real-life counterparts charge.

Reduced costs give robo-advisors an edge. However, with low fees comes the personalized touch in overseeing an account. Regulators have raised concerns that automatically recommended portfolios may be too inconsistent and aggressive. Without the instinct that comes with an experienced professional, clients may be exposed to significantly risky investments, if not potential losses.

Compared to traditional investment advisors, their robo counterparts offer a limited range of wealth management services on the accounts they manage. Investors seeking out robo-advisement services should look for one or all of the following features:

  • Providing materials to educate investors on wealth preservation services not offered by robo-advisors
  • Offering an additional level of service beyond periodic rebalancing, even if that means an additional fee, to reduce the impact of the inevitable bear market and market corrections.
  • Allowing investors to personally make proactive changes to an account

Unlike their pre-programmed peers, living and breathing financial professionals feel the consequences of investment risks that lead to significant financial losses. They all have the same goal in protecting their clients’ financial security while shielding them from market downturns.

Eliminating the human factor can create risks that affect a client’s account financially and an advisor’s reputation professionally.

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