{"id":4502,"date":"2014-08-08T06:23:56","date_gmt":"2014-08-08T13:23:56","guid":{"rendered":"http:\/\/staging-prblog.paladinregistry.com\/blog\/?p=4502"},"modified":"2014-08-11T08:45:07","modified_gmt":"2014-08-11T15:45:07","slug":"robo-financial-advisors-better-humans","status":"publish","type":"post","link":"https:\/\/www.paladinregistry.com\/blog\/advisors\/robo-financial-advisors-better-humans\/","title":{"rendered":"Are Robo Financial Advisors Better than Humans?"},"content":{"rendered":"

\"robos<\/a>To answer this question, it\u2019s important to realize that investment consulting encompasses two distinct crafts: (1) the development of advice and guidance and (2) the delivery of that advice and guidance. \u00a0The 2nd craft is relationship management, a uniquely human skill that has evolved very nicely over the past 40 years, creating today\u2019s “trusted advisor.” \u00a0In the contest between Robo financial advisors <\/a>and Human advisors, Human wins the relationship management contest because Robos aren\u2019t playing.<\/p>\n

Robo financial advisors disdain this human craft, opting instead to focus on the first craft, that of developing advice and guidance. \u00a0So the question is whether Robos are better than Humans at the craft of developing advice. \u00a0The unfortunate reality is that both could be better, so neither is a clear winner. \u00a0No one ever questions the rigor and efficacy of investment advisor analyses, but they should.\"advisor<\/a><\/p>\n

Unlike the craft of relationship management, the craft of advice and guidance remains in the Dark Ages even though the front end of that craft, namely data collection, is better now than it has ever been.\u00a0 Robos are masters at collecting data, so they have an edge, but data is not information & it is certainly not knowledge. \u00a0Analysis of that data has not evolved much in the past 40 years, even though it is processed at lightning speed in this digital era.<\/p>\n

Better Tools<\/strong><\/p>\n

There are better analytical tools but they remain on the shelf. \u00a0Human financial advisors use the old analytical tools too, although not as adeptly as Robos. \u00a0It\u2019s like using a scalpel instead of a laser for corrective eye surgery.<\/p>\n

The craft of advice and guidance addresses two critical investment decisions: asset allocation (amounts in stocks, bonds, etc.) and manager selection. \u00a0The old tool for asset allocation is Modern Portfolio Theory (MPT) which is now 60 years old. \u00a0In the meantime, more advanced and accurate approaches have emerged, including the following:<\/p>\n