Betterment offers automated planning, does this signal the end for human advisors?

Betterment, a US-based automated investing service, or “Robo Advisor” as they are commonly referred to, recently announced the release of RetireGuide™ – an advice engine that creates a free personalized retirement plan for account holders. While this move confirms the importance of financial planning in the investment management process, Betterment’s RetireGuide isn’t going to render human advisors obsolete any time soon.

How RetireGuide™ works

Betterment claims that RetireGuide™ is unlike typical retirement calculators as it builds a customized savings and investing plan that takes into account all of your investment accounts, including those with other providers, and your spouse’s holdings. I was so intrigued by this amazing claim that I had to checkout the Betterment website for myself.

The first thing I discovered is that RetireGuide™ is designed to answer various retirement questions, such as:

  1. Am I savings enough money?
  2. When can I retire?
  3. How much will I have to live on each year in retirement?

RetireGuide™ uses the information they already know about you as a customer, as well as a few extra inputs to help personalize your plan. In all, RetireGuide™ boasts there are more than 20 pieces of information that goes into creating your plan!

All this information is then put through an algorithm that compares the income provided by your current savings to the income provided by the RetireGuide™ recommendations. Should the numbers provided by your current saving be less than your retirement goal, RetireGuide will offer 3 options:

  • Option #1: Lower your expectations,
  • Option #2: Retire Later, or
  • Option #3: Save more.

Should human advisors be concerned?

Technology should be used to automate all routine functions of financial advice, both investing and planning. Technology will save advisors time and money, allowing them to deliver a better service at a lower cost.

However, from my analysis of what these so called “Robo Advisors” do, I think a more accurate description is “Financial Appliance” as they have more in common with a kitchen appliance than an intelligent robot.

Provide your microwave with a few answers to simple questions.

Question: What would you like to eat?
Answer: Popcorn.

Press start and the appliance runs an algorithm adjusting the power setting and cook time to deliver a perfectly popped bag of popcorn. (Or not, depending on the model, age and power of your microwave.) Do you want a steak? “Robo Chef” can cook one of those as well!


Most financial advisors I know tend to work with people that want more than simple answers as their needs tend to go beyond simple questions. They understand the value of professional advice and most will agree with the saying “If you think it’s expensive to hire a professional, wait until you hire an amateur”.

Professional grade financial planning software, like professional advice, goes beyond a mere 20 questions. It is designed to assist a financial advisor with analysis for all client demographics and to address all the components of a comprehensive financial plan, which includes:

  • Financial management,
  • Asset management,
  • Risk management,
  • Tax planning,
  • Retirement planning, and
  • Estate planning.

In addition, a financial advisor also offers personalized recommendations and the encouragement needed to implement the plan. This “human” process goes way beyond simply merging an advice engine with a diversified portfolio of funds.

So let me be perfectly clear, no I do not think human advisors should be too concerned that the end is near. An automated investing appliance and a 20 question retirement game cannot replace professional financial advice.

The real threat to advisors is not embracing the new technologies, that are currently being developed, in their own practice.

There is no question that automated investing services are here to stay, and they will continue to grow at a rapid pace. If you do nothing, it is only a matter of time until your toaster eats your bread and butter.

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