The true value of a financial advisor may be in the emotional interaction and personal relationship that is shared with a client. When these relationships are formed, advisors gain a better perspective on each client’s unique set of goals, objectives, and priorities. Many young investors just starting out have a number of financial challenges including rent, college loans, and car notes to name a few. Retirement seems like a vague and distant concept. There are a few compelling reasons to start investing early. (1) Time is on your side. With as many as 30+ years until retirement, young investors can afford to be long-term investors. This perspective allows more freedom to navigate the ups and downs of historical markets. (2) Inflation (continuous rise in the general price of goods and services) has historically been around 3% a year. Your investment strategy will need time and sufficient growth to outpace inflation. It also allows one to realize the compounding benefits of returns over time.
Many millennials are turning to robo advisors for various reasons, including the ability to manage their investments on an electronic device. A robo advisor is a digital platform that uses math and algorithms to select and manage investments based on data input from an online questionnaire that evaluates age, time horizon, objectives and risk tolerance. At this early stage in their development cycle, all the risks of electronic platforms may not be fully understood. For example, what will happen during the next economic or market downturn? Often, this is the time when a young investor is the most vulnerable and in need of a seasoned voice to guide them through potentially disruptive behavior.
In our experience, there are several key areas of value in which a financial advisor can provide assistance. Like the robo, a human advisor will be able to provide asset class allocation and investment selection. The human advisor will also be able to provide assistance in the areas of portfolio rebalancing, tax management and overall financial planning. Together, the expertise provided in all of these areas can be what allows the successful advisor to provide a positive value to consumers over that of its digital competitors.
Steve Massey, CFP®, CPA
Chief Investment Officer