By Mark Scheinbaum
MIAMI (Aug. 10—Can a robot or a robotic computer program in Memphis, Manhattan, Mumbai, or Madrid meet your financial goals and needs better than a mere mortal humanoid?
Of course, any time we humanoids who are threatened by robotic extinction make our case for survival, our motives are suspect. But experienced, licensed, regulated….and candid investment professionals might still be extremely important for all or part of your investment, retirement, portfolio management, college funding or other needs.
The concepts of automated information storage and retrieval and “robotic” transactions have been around for many years. Very few stock transactions, except for perhaps very large “bulk” institutional orders are “worked” by hand or voice at the trading “post” on the floor of the New York Stock Exchange. Split second order entry and confirmation which “matches” buyers and sellers has been around for more than three decades. Automatic robotic machines do the work.
Similarly, investment strategists and technicians who were literally “rocket scientists” left unemployed by the recession in the aerospace industry in the 1980s and ‘90s were part of a cadre of math and computer whiz kids who streamlined many asset allocations and portfolio “target” models (targeting college or retirement at some future date). Their work provided better charts, hypothetical illustrations, and academic support in the investment, banking, and insurance industry which allowed the human agents and reps to serve clients with more detailed and comprehensive data.
Yet, in recent months I have seen some clients of various ages seeking personal help. Some people who thought a few questions on a website covered their needs were wrong. Others learned that Electronically Traded Funds (ETFs), online chat rooms, do-it-yourself day trading courses, and completely automated “Robo Advisors” sometimes cannot deal with specific problems. These financial consumers needed a deeper understanding of where and how their hard-earned money was being invested, or just some “hand holding” by someone who could always be phoned with a question.
I think back a few years ago of the client whose entire retirement budget changed suddenly. His special needs sister-in-law, in an assisted living center 1,200 miles away and with no other relative but one sister, learned the facility was closing and the only nearby alternative was a decrepit county shelter. Lots of money would be needed for a nicer facility at least on a par with the closing institution, but it was in another town and there were a number of medical and logistics costs. There would also be her $1,500 increase in monthly rent. I remember he said, “I have no legal responsibility to this woman. I did not really think large sums like this would ever be needed for my wife’s sister, but this is family. This is close family. We have the money but have to increase our income from our investments and make some changes in our expenditures. I need to sit down and rework things with you.”
While thinking of many more dramatic and heart-wrenching situations where we have helped clients because of personal knowledge and an understanding of their needs, I decided the case above is actually more typical. It could happen to anyone. It would not make CNN or the local news. But in a way I was glad to have been there. I am not a robot.
There was no robot around to help the restaurant owner who was about to pledge everything his family owned for $2 million in mandatory fire suppression and kitchen safety renovations for his restaurant. As a human financial advisor I saw the smiles of amazement when I showed him, his wife, and three adult kids—all running the restaurant—that the very large brokerage account they had accumulated over the years had a low interest “margin” feature, which allowed for them to use their portfolio as collateral and could fund the renovation. It did. The parents have passed away. But the kids still run a successful restaurant employing dozens of people and giving back to the community in so many ways each day.
If you believe “cheaper is better” rather than “you get what you pay for” and feel that professionals in accounting, law, investments, medicine, architecture, etc are a waste of money, this is your prerogative. For sure, everything from a will or trust, blueprints for a house, and tax preparation forms can be obtained online for free or for a deep discount. Just keep in mind that there are contrarians out there who are looking to make lots of money correcting or repeating the mistakes made by the “self-help” people. Mostly the self help people must be satisfied because the numbers of automated and robotic platforms for goods and services continues to grow. For other people there should be a sensible mix of automation and personal interaction.
My guess is that the Millennial generation using Amazon Prime “points” for pizza delivery, and “Go Funding” pages for wants and needs will continue to overwhelmingly avoid advice or even consultations from folks such as myself. I also suspect that when the next 1989, 1999 or 2006 bubble bursts or markets crash, they might amend their views.
Although most state regulators have had no problems with robo advisors, since they ask you to fill out a financial questionnaire before doing business—thus complying with Department of Labor and other fiduciary rules, some big questions remain. For example, the State of Massachusetts indicated last year that intake from a robo advisor account alone might not be the best way to have a comprehensive view of someone’s financial goals and needs. The implication was that humans trained and licensed to detect more complex needs and goals still play a role in financial plans.
An article on the pros and cons of robotic investing in the New York Times last year noted
”… A robo-adviser does not ask about money held outside of its service, for example, which can provide a distorted picture of a customer’s financial standing. Others argue the robo-advisers try to wiggle out of too much responsibility in their customer agreements.” *
In my business, we still take calls at night and on weekends. We still make house calls and we still speak to civic groups, libraries, and even teach college classes at night. Ironically, when we draw from decades of continuing education, client conferences, and team planning with accountants, lawyers and sometimes even clergy we create a quick-reference “memory bank” of solutions and suggestions. Ummm. Sort of robotic. But it is the same “robotic” or repetitive response which the artificial intelligence experts are always trying to perfect. Our type of robotics is always flexible to sudden change and human needs.
For those who view this entire column as “sour grapes” I totally understand and wish you good outcomes. But I am still here to serve you.
MARK SCHEINBAUM is managing director of Shearson Financial Services, LLC in Boca Raton, Florida, a full disclosed correspondent of RBC (Royal Bank of Canada Capital Markets); he is a veteran business editor and publisher and adjunct instructor at Florida International University in Miami. MScheinbaum@Shearsonllc.com