In 2001, my wife and I bought a very large independent video store, which she managed while I took care of our two restaurants. It was a great business, and for people of my age, a bit of a nostalgic one, since the trip to the video store was always a treat when we were kids.
Not too long after we began running our new business, my wife came in the front door of our home carrying the mail. One of the pieces of “junk” was a postcard advertising a new company called Netflix. She wondered if this new company was a competitive threat to our business, and asked me to look into them.
I did my research and was unimpressed. “You have to wait for a movie to get to you in the mail? And then have to mail it back? What idiot would wait 3 days for a movie when they can drive over to our store and have it in their hands in 10 minutes?” I laughed off this new service as a fool’s errand. Most of our fellow video store owners felt the same way. We pressed on, thinking this new idea would soon fade away.
You know how this story ends.
I didn’t believe then about the impact technology could have on an entire industry, to say nothing of the speed it can move. What we thought might take ten years took less than five. And now, even Netflix’s “movie in the mail” innovation is obsolete, replaced with digital downloads and on-demand service.
I was wrong. I’m human, so I’m wrong a lot. But I’m also smart enough to learn from my mistakes; to take the lessons from history, so that I’m not doomed to repeat them.
When the financial service trade papers began buzzing about “robo advisors” a year or two ago, I decided to check them out. I also took note of the reaction from my colleagues and contemporaries in the industry – fellow human beings whose businesses were now being threatened by advances in technology.
Their reactions are startlingly similar to the ones from video store owners in 2002, and book store owners ten years before that. “Impossible,” they all declare. “Clients need our expertise and experience and value our relationship!”
While on the surface, that’s true, we believe the Robo Advisor has a real, valuable, and permanent role to play in the management of people’s money. So instead of fighting the future, like last time, this time we intend to embrace this new innovation, and more importantly, put it to work for you, our clients.
At nVest Advisors, we love the robo advisor, and we think you will, too. Here’s why:
The robo never sleeps.
The world markets move at lightning speed, and never rest. With so many companies and countries interconnected, having a watchful eye on the account every minute of every day is extremely beneficial. A human being, as diligent and hard-working as they come, cannot do this.
Plus, the robo advisor doesn’t get sick, doesn’t take vacation, doesn’t give a two-week notice, and doesn’t have a case of “the Mondays”. It does what it is programmed to do, which is monitor your account and make adjustments based on market conditions.
The robo doesn’t discriminate.
Because human beings place emotional weight on things they perceive to be more valuable than others, it should be no surprise that human advisors segment and categorize their clients into different groups. If you are an “important” client (meaning you create a lot of revenue for the advisor), you will, just because of human nature, receive better service than a smaller account or a less-demanding client.
Robo advisors don’t care, because they place no emotional value on money. The machine is focused only on its instructions. That’s why when you open your nVestMe account and utilize our joint Robo/Human Advisor experience, whether you have $100 or $10,000,000, the machine is watching every account with equal veracity. This gives all of our clients at nVest Advisors something no human-only advisor can claim: totally fair and even account service.
The robo can do it cheaper.
Human beings have mortgages, car payments, and kids to put through college. They value their free time, and so charge a fee they believe is fair to pull them away from other areas of their life to be of service to you.
The robo advisor exists only to serve its purpose. It can do so for many more accounts, much more quickly than a human being can do it. So, because the robo can serve enormous volumes of accounts with equal precision, the cost per account can be dramatically lower.
The robo never gets emotional.
I’ve said for years that the number one thing I have to do as your advisor is to keep you from making emotional mistakes with your money. There is an entire field of study dedicated to observe and change how humans interact with their finances, and what’s come up over years of research is this:
We’re irrational when we should be rational. As a result, we mess ourselves up. Over and over again.
We humans want to believe in conspiracy theories. We’re political. We like gossip. We often rebel against obvious trends. And we often believe that the rules of life don’t really pertain to us – that somehow we can avoid unpleasantness and hard work needed to make lasting changes (like going to the gym, or saving for retirement instead of playing the Lotto). We humans believe in luck.
The robo advisor eliminates those kinds of emotional mistakes when it manages our accounts on a day-to-day basis. The robo uses algorithms, not “gut instinct”. It doesn’t get depressed at the state of the world. It can’t be worked into a panic by doomsday opinions on CNBC. It doesn’t have a political axe to grind.
In short, the robo does for our money what we humans are incapable of doing.
All of this is good for you, because money management must be an unemotional, logical, systematic event: the robo does it exactly the way research has shown over the years to be the key to investing success. In fact, it can’t do it any other way.
Of course, there are things the machine can never do for you that the human advisor can. The machine never gets to know you, look you in the eye, shake your hand, listen to your story. The machine will never be able to see your confusion about investing, or comprehend the sincerity with which you pursue your financial goals. The machine can invest for your child’s college education, but it can never understand how important your child is to you.
The machine’s role in your financial life needs to be what the machine is best at: vigorous, unemotional, unrelenting, day-to-day management of your investment portfolio. That’s what we use it for here at nVest Advisors.
Using the machine to handle most of our “back office” tasks allows our human advisors the time to engage you more as a client. They can hold more educational workshops in their neighborhoods, volunteer more in their community, serve on that board, spend just that little extra time with their families. All while the Robo Advisor dutifully watches the world and your investments, and takes the actions we tell it to, to take full advantage of opportunities for our clients.