There is a lot of talk these days about robo-advisors. The idea is simple. Type in a few parameters about your life, income and goals and a computer system will produce a custom investment plan just for you. The computer becomes your advisor. The elegance of this approach is alluring. This type of guidance is particularly attractive to Millennials, those born between 1981 and 1997.
Millennials grew up with more technology than any generation before them. So a computer-based advisor probably feels like a good fit for them. It feels natural. But there’s a problem, a hidden piece of the puzzle that might not be intuitive to Millennials.
It’s harder to build meaningful levels of wealth today than ever before in our nation’s history. I believe most Millennials will never achieve their wealth goals without a real human being guiding them and holding them accountable over time. Here are my reasons.
Millennials Love Technology
I want to say for the record that I am not opposed to robo-advisors. They are a perfect fit for certain people in certain situations. But I do not believe that a 100% computer-based system of advice will empower most Millennials to accumulate and preserve meaningful levels of wealth that deeply satisfy them over time.
This is probably not obvious to Millennials. This generation has a level of confidence in technology that is virtually unprecedented, and for good reason. Millennials have grown up in a world where the possibilities for what technology can accomplish seem nearly infinite.
The average Millennial carries a computer system in their hand that is more powerful than the computer systems NASA utilized in 1969 – stacked floor to ceiling – that put a human being on the moon. These devices give Millennials near instantaneous access to people on the other side of the globe. That’s just the beginning.
There are four major areas where Millennials have come to trust computer systems in ways that prior generations could not have imagined:
- Entertainment – their TV, music, apps and video games travel with them everywhere.
- Communications – they text, email, chat, skype and finally call someone as a last resort.
- Purchases – they buy food, plane tickets, Uber rides and household goods online.
- Relationships – most Millennials carry their friends, family and colleagues with them through social networks that are always streaming posts, photos and videos.
This is a culture, a mindset, a way of viewing the world. So it only makes sense that Millennials would trust computer systems, would even prefer computer systems, to handle one of the most important areas of their life – their wealth.
Long-Term Versus Short-Term Focus
I want to point out one major flaw in the reasoning here. Millennials not only love technology, they often love new technology. That works really well if your goal is to design and sell the latest mobile phone. It does not work so well if your goal is to build a long-term financial plan.
There is a built-in expectation in the technology world that computers, phones, tablets and apps will get upgraded every few months. In fact, there is even a name for this expectation. It’s called Moore’s Law and it holds that about every 18 months, the compute capacity of the central processing unit (CPU), the brain of any system, will double. This means that if your device is more than 18 months old, it’s probably half as powerful as the newest system on the market.
So this raises an interesting question. If it’s a good idea to upgrade your laptop, phone, tablet and apps every few months, shouldn’t you also upgrade your wealth plan? Wouldn’t you want access to the latest advice and strategies for wealth building?
At Whitnell, we believe that time-in-market will nearly always win over timing-the-market. We believe that a long-term focus on your wealth creation goals is essential to actually achieving those goals.
I want to be clear that not every robo-advisor available today takes a short-term focus. Most of them, in fact, do not take that focus. But the danger is to believe that the newest thing is the best thing. In wealth building that’s often not true.
Where Computers Fit Into The Big Picture
Computer-assisted investment advice can be a very good thing. The truth of the matter is that computers guide our work every day at Whitnell as we help clients make investment decisions. So it would be disingenuous of me to say that computers are not a critical part of achieving solid investment returns.
But herein lies my thesis, my main argument. Robo-advisors today focus primarily on investment returns and investment returns alone are not enough to build long-term, lasting wealth.
You need a comprehensive approach that certainly includes investment advice. But it also needs to include tax strategies, estate plans, financial planning, risk assessments and retirement considerations. Only humans can take all of these factors into consideration today and build an all-encompassing strategy that is custom-tailored to your needs.
Now you might be thinking that you don’t need all of those things right now. That could be true. Most young people who are building wealth will only need to figure out what to do in these areas as their life situation changes. For instance, if you have a child, an estate plan becomes something you really need to think about and put in place.
But everyone needs a good financial plan, strategies to mitigate taxes, a clear picture of where they are at-risk of financial losses and a timeline for successful retirement. I believe that an honest-to-goodness person-to-person relationship is most likely to achieve these goals. After thinking about this for a while, I’ve come up with 5 reasons I believe this is true.
5 Reasons Millennials Need A Human Financial Advisor
Here are 5 reasons I believe Millennials should choose a human financial advisor for their family.
- Time changes everything – you need a long-term partner.
- The best-laid plans are often laid waste – you need someone to hold you accountable and help you make tough decisions.
- Top athletes have top coaches and so should you – you need a financial coach to guide you through adversity.
- A computer cannot understand why your mother calls every Sunday – you cannot separate love, family and wealth-building.
- A computer will never “hear” more than you say – a human being can intuit things you don’t say and that is crucial to wealth building.
Let’s look at each of these briefly.
Time Changes Everything
You need a long-term partner. If we assume that wealth-building is a marathon and not a sprint, then a long-term view of your family’s horizon becomes critical. The question becomes – who is better qualified to be your long-term partner?
I submit that a human being who understands you and your family intimately will always be a better long-term partner than a computer system that doesn’t really know you. Will a computer system rejoice with you when your children are born, mourn with you when a loved one passes away or stand up and cheer when your children graduate?
All of these life events bring about changes in how you feel about the world and what you want to do with your life. Your wealth plan needs to follow suit.
The Best-Laid Plans Are Often Laid Waste
You need someone to hold you accountable and help you make tough decisions. The start of a new year is a time when many people set new goals, including financial goals. But setting goals and achieving goals are two very different things.
Most people lose sight of their financial goals either because life gets in the way or because they run into a complex situation where they need good financial guidance and don’t get it. My point is this.
If you are going to achieve your wealth creation goals, you need someone there to hold you accountable to focus on the goals and keep doing the right things. There are so many distractions that life throws our way.
For instance, a computer system won’t talk you out of buying a really expensive new car that might delay your retirement. But a real human can help you sift through the pros and cons of such a decision and even show you in real numbers how that choice will impact your financial future.
Top Athletes Have Top Coaches And So Should You
You need a financial coach to guide you through adversity. Every path to greatness is met with some type of obstacle, some challenge that must be overcome. Top athletes often achieve greatness because they hire the best coaches to help them through the difficult moments. Great coaches and trainers help athletes stay focused through the ups and downs.
Wealth building is no different. There will definitely be challenging times when you might question whether or not it’s worth it to keep going. The markets are often volatile and the urge to get out at the wrong time can be very strong.
At Whitnell, we believe some of the most important service we deliver to our clients occurs during significant market downturns. Choices made under duress often have irreversible consequences. My colleague Wayne Janus wrote a great article about this situation.
If you don’t have a real human being who feels your anxiety and can help talk through the situation with you, it is very possible that you’ll make decisions that might have a long-term negative impact on your wealth.
A Computer Cannot Understand Why Your Mother Calls Every Sunday
You cannot separate love, family and wealth-building. A computer simply cannot understand why you are building wealth. For the vast majority of Americans, wealth building is about ensuring that their family lives the life that they always dreamed of. People build wealth to care for the ones they love.
Let’s assume that a couple works hard for 35-40 years to accumulate wealth. Along the way, many life events will take place that have financial implications:
- Couple gets married.
- Couple buys first home.
- Children are born.
- Couple buys second home.
- Children go to college.
- Children graduate from college.
- Parents need financial assistance in old age.
- Children get married.
- Grandchildren are born.
- Parents pass away.
- An inheritance is received.
- Couple retires.
Each of these events will either add to or take away from your overall net worth. To a computer system, these will only ever be transactions. But these transactions are the very reason you are building wealth in the first place.
Each of these major life events will come with some significant financial choices. Take, for instance, parents needing financial assistance in old age. Most people have to choose between:
- Option A – moving a parent into a care facility.
- Option B – hiring a live-in caregiver at the parent’s home.
- Option C – moving the parent in with a child who will serve as caregiver.
Will a computer be able to help you sort through the intricacies and emotional impact of option A, B or C? Will a computer be able to help you balance the financial implications of each option against your sense of duty, emotional commitment and even religious values?
There are some things that only a human being can understand. It is this understanding, this sense of knowing your values and why you’ve worked so hard for so many years, that is really valuable.
A Computer Will Never Hear More Than You Say
A human being can intuit things you don’t say and that is crucial to wealth building. This may be the single biggest reason that Millennials need a human financial advisor. At the end of the day, a computer system is only an electrical current flowing through a circuit board. As much as we might enjoy technology, it has its limits.
Have you ever noticed how hard it is to talk about money? This is especially true for those who are closest to us. Talking to children and grandchildren, parents and even a spouse about money can be very difficult. There is so much opportunity for miscommunication, for sending the wrong message.
This is why you need an actual human being to listen to you, to ask clarifying questions and to re-ask them again and again over time. As we talk about money, we sort out what really matters to us and what we want to see our wealth do for us. As major life events come our way and change our priorities, we need someone to help us figure it out.
I believe that nothing will ever replace the experience of a sitting down and talking to an experienced financial professional, someone who will look you right in the eye and listen to both what you say and what you don’t say, someone who really knows you, your values, your family and why you want to build wealth.
Do You Know A Millennial Who Needs This?
If you are in the Millennial generation and are thinking about your future, I recommend that we have a conversation to talk about your goals. If you are the parent or grandparent of a Millennial you are concerned about, my door is open to have a conversation with them.
The information contained in this article is provided for informational purposes only. No illustration or content in it should be construed as a substitute for informed professional tax, legal, and/or financial advice.