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Your next financial adviser may be a computer

Mike Kerins, founder and CEO, RobustWealth.-(AARON HOUSTON)

The next time you seek advice about your stock portfolio, the party that’s answering may not be a human.

Increasingly, financial institutions, such as investment and wealth management firms and banks, are adopting “robo-adviser” technology. It’s a computerized approach offered by fintechs, or financial technology companies, that proponents say could “democratize” retirement savings and investment, opening up a lifeline to large number of people with little or no retirement savings.

But will it spell the end of human advisers?

Robo advisers are online, automated portfolio management services that use sophisticated computer algorithms to suggest investments that match an investor’s time horizon and risk tolerance. Typically utilizing an online questionnaire to determine these characteristics. They often invest in exchange trade funds, or ETFS, which represent a “basket” of stocks or bonds and have at least $200 billion of assets under management, according to consensus estimates.

Because they’re digital, companies that utilize robo advisers can usually spread their cost over a wide customer base — a robo-adviser won’t call in sick or expect a pay raise — and typically offer financial services for a fraction of the management fees charged by their human counterparts. That could help nudge more people to start investing, which is good considering that nearly half of working-age families have no retirement account savings at all, according to an Economic Policy Institute study.

RobustWealth, a Lambertville-based business-to-business company, developed a digital wealth management platform used by registered investment advisers and other financial professionals.

Rating the Robos

About three years ago, Condor Capital Management President Ken Schapiro began to wonder how well robo-advisers stacked up against each other.

“It was like a black box,” said Schapiro, whose Martinsville-based investment advisory manages nearly $1 billion for more than 700 families and businesses. “Robo-advisers have about $200 billion of assets under management, but no one had an easy way to compare their performance. So the management team from Condor Capital established a spinoff, BackEnd Benchmarking and ended up investing a total of about $500,000 in “the largest and most popular robo advisers.”

But Condor Capital itself doesn’t use robo-advisers in its investing.

Condor tracks the returns and publishes a quarterly newsletter, The Robo Report, which ranks the robos’ performance and offers observations on the industry.

“Overall, robo returns are about equal to those of human advisers,” Schapiro said.

RobustWealth CEO Mike Kerins compares ro bo-advice to self-directed brokerages, which offered discounted fees and took off in the 1990s, making it easier for more people to buy or sell stocks. In fact, the Charles Schwab brokerage offers a fully automated investment service called Intelligent Portfolios, which automatically monitors and rebalances an investor’s portfolio while still offering the option of accessing Schwab investment professionals.

“Robo and digital services give more people better advice, and allow advisors to service smaller clients,” Kerins said. “But it won’t replace human advisers. Most of the companies that use our own robo-platform offer a hybrid approach, where clients can self-manage their accounts, or they can speak with a human adviser.”

Because of their reduced fees and easy accessibility, Kerins said robo-advisers could to help people do a better job of saving and investing. But only to a point.

Said Kerins: “Robo is good because it allows more people to access great investment tools. But as their assets grow, they’ll eventually want to connect with a human to find out about more-sophisticated strategies, and to coordinate their investments, wealth-transfer and other activities. Also, in the event of a significant market move, many people want to talk to a live person. But a hybrid approach gives clients the flexibility to interact in ways that are most comfortable to them.”

RobustWealth’s platform also accommodates goal-based investing, which enables individuals to set a date for certain life events – such as like buying a house, or retiring – and then get recommendations about the level of savings and kind of mix of investments to help reach them.

In a move that Kerins said will increase the company’s reach, RobustWealth was recently acquired by Principal Financial Group, which offers retirement, insurance and asset management solutions.

“We’ll combine our platform with Principal’s operations so we can reach even more people,” he said.

Stephen Ng, founder and president of Stephen Ng Financial Group in Short Hills, acknowledges that robo-advisers can offer low-cost advice but said there’s room enough for a human approach too.

“If someone is a high-tech person, they may go for a robo-adviser,” Ng said. “But if they want high-tech and high-touch, they will go to a human being. It’s like choosing to buy goods online, or going to a brick-and-mortar store. There’s enough business for both as long as they can properly service their market.”

Ng, who has about $200 million of assets under management, said his client base is made up of middle- to upper-income individuals, and he makes a point of spending a lot of time answering their questions and educating them.

“Robo-advice is cheap, but there’s a lot involved in financial planning,” he said. “Robos can access a great deal of knowledge, but it takes human wisdom to actually decipher what’s out there, and motivate clients to act on their knowledge. Many of my clients see me as more than just a financial adviser. I’m also a kind of life coach and motivator, and they ask me to intervene in their family issues as well as their financial ones. You don’t get that from a digital adviser.”

On yet another front, Bank of America recently rolled out a virtual assistant, called Erica, to help about 25 million mobile banking customers with their transactions.

Powered by artificial intelligence that the bank said will help it learn about customers, BoA head of digital banking Michelle Moore said Erica delivers “personalized solutions at scale by providing insights, such as how you can improve your credit score or create a budget.”

Mobile banking clients can use Erica to search for past transactions, including checks written or shopping activity, access key information like routing numbers or the closest ATM or financial center, view bills, schedule payments, transfer money or even schedule face-to-face meetings with live bankers at BoA’s financial centers.

“Erica’s knowledge of banking and financial services increases with every client interaction,” said Aditya Bhasin, head of consumer and wealth management technology at the bank. “In time, Erica will have the insights to not only help pay a friend or list your transactions at a specific merchant but also help you make better financial decisions by analyzing your habits and providing guidance.”